UC-NRLF 


$B    3T    SDD 


THE  COOPERATIVE 
ELEVATOR  MOVEMENT 


A  STUDY  IN  GRAIN  MARKETING  AT  COUNTRY  POINTS 
IN  THE  NORTH  CENTRAL  STATES 


DiSSERTATI  /N 

Submitted  to  the  Faculty  of  Phdosopky  of  the  Catholic  Uni- 
versity of  America  in  partial  fulfillment  of  the  require- 
ments for  the  Doctorate  iv  Philosophy 


BY 

Joseph  B.  Kenkel,  C.  PP.  S. 

Catholic  University  of  America 

Washington,  D.  C, 

1922 


i 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


i 


http://www.archive.org/details/cooperativeelevaOOkenkrich 


THE  COOPERATIVE 
ELEVATOR  MOVEMENT 


A  STUDY  !N  GRAIN  MARKETING  AT  COUNTRY  POINTS 
IN  THE  NORTH  CENTRAL  STATES 


DISSERTATION 

Submitted  to  the  Faculty  of  Philosophy  of  the  Catholic  Uni- 
versity of  America  in  partial  fulfillment  of  the  require- 
ments for  the  Doctorate  in  Philosophy 


BY 

Joseph  B.  Kenkel,  C.  PP.  S. 

Catholic  Uni^rsity  op  America 

Washington,  D.  C. 

1922 


r^^^th^^i^..t:^\'.^ 


Copyright   1922 
By  The  University  Press 


Chas.  H.  Potter  A  Co.,  Inc. 
Washington,  D.  C. 


r\ 


TABLE  OF  CONTENTS 


Page 


CHAPTER  I 


CHAPTER  II 


CHAPTER  III 


Introduction   v 

General  Characteristics  and  Costs  of  Grain 
Marketing    1 

Modem  Marketing  Methods,  an  Outgrowth  of 
the  Industrial  Revolution 

Agricultural  Products  at  present  generally 
Marketed  by  Middlemen 

Attitudes  regarding  the  Economic  Value  of 
Middlemen 

Functions  of  Middlemen  in  the  Marketing  of 
Grain 

Methods  of  Marketing  Grain  in  the  United 
States 

Costs  of  Marketing  Grain  in  the  United  States 

Dissatisfaction  of  Grain  Growers  on  account  of 
These  Costs 

Their  Proposal  of  Cooperative  Marketing  as  a 
Substitute  System 

Historical  Survey  of  Cooperative  Grain  Mar- 
keting in  the  North  Central  States 11 

Origin  of  Cooperative  Grain  Marketing  in  the 
United   States 

Cooperative  Grain  Marketing  and  the  Grange- 

Temporary  Decline  of  this  Organization 

Political  Character  of  Succeeding  Organiza- 
tions and  Consequent  Decline  of  Rural  Co- 
operative Enterprises 

Growing  Dissatisfaction  of  Farmers  with  Price 
Received  for  Grain 

Abuses  Existing  in  Grain  Trade  toward  End  of 
Last  and  Beginning  of  Present  Century 

Opposition  of  Organized  Grain  Dealers  to  the 
Early  Cooperative  Elevator  Companies — 
Opposition  Largely  Explains  Later  Growth 
of  Cooperative  Elevator  Movement 

Later  Growth  of  Cooperative  Elevator  Move- 
ment 

The  "Penalty  Clause"  as  a  Feature  of  the 
Movement 

Growth  of  the  Movement  from  1903-1913 

Growth  of  the  Movement  since  1913 

Present  Status  of  the  Movement  as  to: 

(1)  Number  of  Cooperative    Elevator    Com- 

panies 

(2)  Number  of  Members 

(3)  Volume  of  Business 

Structure  and  Functions  of  the  Local  Mar- 
keting Associations 35 

Local  Companies,  the  Fundamental  Units  of  the 
Movement 

Their  Method  of  Distributing  Profits  as  a  Basis 
of  Classification 

Comparative  Study  of  the  Number  of  Com- 
panies Organized  as: 

(1)  Ordinary  Capital  Stock  Corporations 

(2)  Joint  Stock  Companies 

(3)  Capital  Stock  Corporations  with  Cooper- 

ative  Features 

(4)  Truly  Cooperative  Associations 

iii 


484683 


Page 

(a)  Cooperative  Capital  Stock  Associa- 
tions 

(b)  Cooperative  Non-stock  Associations 
Articles  of  Incorporation 

Adoption  of  By-laws 

Local  Conditions  and  State  Incorporation  Laws 

Determining  the  Provisions  of  By-laws 
Principal  Features  of  By-laws 
Number  of  Members  Comprising  a  Company 
Volume  of  Grain  Handled 
Incidental  Functions 
Financing 

Variations  in  the  Distribution  of  Earnings 
The  County  Unit  Plan 
Companies  Affiliated  with  Terminal  Marketing   " 

Associations 
The  U.  S.  Grain  Growers,  Inc. 

CHAPTER  IV     Agencies  Promoting  Cooperative  Grain  Mar- 
keting        67 

The  Farmers  State  Grain  Dealers  Associations 
The  Farmers  National  Grain  Dealers  Associa- 
tion 
The  American  Cooperative  Publishing  Company 
The  Farmers  Educational  and  Cooperative  Union 
The  American  Society  of  Equity 
The  Farmers  Equity  Union 
The  Non-partisan  League 
The  American  Farm  Bureau  Federation 

CHAPTER  V      Results  Achieved  Through  Cooperative  Grain 

Marketing   87 

Cooperative  Elevator  Companies  as  Competitive 
Factors  in  Country  Grain  Marketing 

(1)  Formerly 

(2)  At  present 

Profits  Realized  by  Individual  Companies 

(1)  Survey  in  Minnesota 

(2)  Comparative   Survey  of   Federal   Trade 
Commission 

Educational  and  Social  Advantages  Derived 
from  Membership  in  a  Cooperative  Eleva- 
tor Company 

CHAPTER  VI    Factors   op   Success   in   Cooperative   Grain 

Marketing    Ill 

Feeling  of  Community  Interests 

Large  Volume  of  Business 

Proper  Plan  of  Organization 

Incorporation  and  By-laws 

Efficient  Management 

Accounting  and  Auditing 

Loyalty  of  Members 

Centralization  of  Effort 
CHAPTER  VII  Summary  and  Conclusion 133 

Appendices  143 

(1)  Form  of  Incorporation  for  a  Local  Asso- 
ciation 

(2)  Form  of  By-laws  for  a  Local  Association 

Bibliography   150 

Vita    155 

iv 


INTRODUCTION 

The  present  treatise  reviews  a  movement  which  has 
arisen  among  the  grain  growers  of  the  North  Central 
States,  and  which  during  recent  years  has  spread  at  a 
rapid  rate.  Many  grain  growers  of  this  region,  because 
they  have  considered  excessive  the  charges  demanded  by 
country  grain  dealers  for  the  service  they  perform  in 
marketing  grain,  have  organized  themselves  into  local 
associations  for  the  purpose  of  marketing  their  grain  co- 
operatively. 

The  term  North  Central  States  as  used  in  these  pages 
corresponds  with  the  usage  adopted  by  the  United  States 
Census  Bureau.  It  includes  the  following  States:  Ohio, 
Indiana,  Illinois,  Iowa,  Nebraska,  Kansas,  Missouri,  North 
and  South  Dakota,  Minnesota,  Michigan,  and  Wisconsin. 
Although  cooperative  grain  marketing  is  no  longer  con- 
fined to  the  States  just  named,  nevertheless,  the  vast  ma- 
jority of  the  associations  thus  far  organized  are  within  the 
limits  of  this  territory.  It  is  in  this  region  that  the  move- 
ment had  its  origin  and  its  fullest  development. 

The  term  cooperation  connotes  essentially  the  voluntary 
association  of  persons  for  the  attainment  of  a  common 
object.  In  its  more  specific  and  technical  usage,  coopera- 
tion or  cooperative  enterprise  designates  a  distinct  type 
of  business  organization.  When  thus  used,  it  stands  for  the 
application  of  certain  business  principles,  whereby  a  con- 
cern adopting  them  is  distinguished  from  sole  proprietor- 
ship, the  partnership,  and  the  ordinary  capital  stock 
corporation.  These  principles  are  the  so-called  "one-man 
one- vote"  feature,  which  allows  to  each  member  of  the 
enterprise  only  one  vote  regardess  of  the  amount  of  capital 
he  may  have  invested  in  it ;  the  limitation  of  the  amount  of 
capital  each  person  may  invest;  and  the  distribution  of 
savings  in  proportion  to  the  amount  of  business  each 
member  or  patron  has  transacted  with  the  concern,  after  a 
stipulated  rate  of  interest  has  been  allowed  on  the  invested 


capital.  Many  of  the  cooperative  grain  marketing  associa- 
tions of  the  North  Central  States  are  conducted  according 
to  these  principles,  and  an  effort  is  made  in  this  treatise 
to  ascertain  what  percentage  of  the  total  number  operate 
on  this  basis.  But  many  associations  not  embodying  these 
features  have  likewise  been  included  in  this  discussion  be- 
cause they  have  been  organized  with  the  same  end  in  view 
as  the  associations  just  referred  to,  and  as  such  form  part 
and  parcel  of  the  general  movement  to  be  described. 


CHAPTER  I 

General  Characteristics  and  Costs  op  Grain 
Marketing 

The  Industrial  Revolution,  beginning  in  England  toward 
the  end  of  the  eighteenth  century,  ushered  in  a  new  order 
in  economic  and  social  life.  The  marvelous  expansion  of 
commerce,  trade,  and  industry  consequent  thereupon,  ex- 
tended to  both  city  and  country.  The  most  profound 
changes  in  rural  economy  were  the  passing  of  the  self- 
sufficing  farm  or  community  and  the  creation  of  a  world 
market  for  agricultural  products.  Where  formerly  there 
had  existed  a  series  of  local  and  restricted  markets,  now 
for  some  products  there  began  to  exist  only  one  market 
and  that  a  world-wide  one.  Where  formerly  the  farm  had 
been  for  the  greater  part  a  self-sufficing  unit,  now  through 
the  greater  division  of  labor  it  produced  largely  for  others 
and  used  and  consumed  what  others  produced  or  fashioned. 
These  two  fundamental  facts  of  the  present  day  were  the 
most  significant  changes  wrought  in  rural  life  through  the 
application  of  steam  and  electricity  to  transportation  and 
communication.^ 

With  the  passing  of  the  household  economy  of  the  farm 
and  the  extension  of  the  market  for  agricultural  products, 
the  system  of  marketing  has  undergone  a  vast  change.  In 
fact,  an  entirely  new  system  has  come  into  existence. 
Agricultural  products  today  are  generally  marketed  by 
agents  who  in  economic  terminology  are  called  middlemen. 
A  middleman  in  this  sense  is  "one  through  whose  hands 
goods  pass  from  one  trader  to  another  or  to  a  consumer."  '^ 
Without  enumerating  these  various  agents  or  describing 
their  respective  functions  in  the  marketing  of  the  different 
agricultural  products,  it  is  sufficient  to  call  attention  to 
certain  attitudes  which  have  arisen  in  regard  to  the  theory 


1  Cf.  Carver,  T.  N.,  The  Organization  of  Rural  Interests,  in  a  Reprint 
from  Yearbook  of  U.  S.  Dept.  of  Agri.,  1913,  pp.  239-40. 

2  Palgrave,  R.  H.,  Dictionary  of  Political  Economy,  Vol.  Ill,  p.  753. 


2  THE   COOPERATIVE   ELEVATOR    MOVEMENT 

and  the  practices  of  the  middleman.  These  attitudes  vary 
from  that  of  absolute  condemnation  to  that  of  unqualified 
approbation.  Those  representing  the  extreme  wing  of 
opposition  regard  him  as  one  who  by  some  devious  way 
has  insinuated  himself  between  the  producer  and  the  con- 
sumer, performing  no  useful  task  for  either  and  taking 
exorbitant  profits  from  both.  Those  representing  the  ex- 
treme wing  of  approval  regard  the  middleman  as  perform- 
ing not  only  a  very  useful  but  also  a  necessary  function  in 
modern  enterprise,  and  hold  that  the  abuses  which  have 
crept  in  now  and  then  are  to  be  regarded  as  defects  such 
as  cling  to  all  human  institutions. 

The  very  extremeness  of  these  views  inclines  one  to 
think  that  both  of  them  contain  truth  mixed  with  error 
or  vice  versa.  It  is  readily  conceivable  and  even  probable 
that  the  middleman  is  performing  not  only  a  useful  but 
also  a  necessary  function  in  the  marketing  of  some  agri- 
cultural products,  while  in  the  marketing  of  others  he  may 
be  dispensed  with  entirely.  Similarly,  it  is  readily  con- 
ceivable that  in  virtue  of  economic  power  the  middleman 
may  at  times  have  taken  exorbitant  profits  at  the  expense 
of  both  producer  and  consumer,  while  at  other  times  he  may 
have  borne  the  losses  that  producers  and  consumers  would 
have  incurred  under  a  system  of  direct  distribution.* 

In  general  it  may  be  safely  said  that  the  functions  which 
these  middlemen  perform  are  a  necessary  phase  of  the 
marketing  process.  But  doubt  has  arisen  in  the  minds  of 
many  farmers,  and  this  holds  true  in  a  special  manner  of 
the  grain  growers,  whether  at  least  some  of  these  functions 
might  not  be  more  economically  performed  by  themselves. 
Thus  it  is  readily  seen  that  the  real  issue  between  the  grain 
grower  and  the  middleman  relates  to  the  fairness  of  the 
charge  which  the  latter  exacts  for  the  service  that  he  per- 
forms. It  is  this  issue  which  lies  at  the  basis  of  and  offers 
the  key  to  the  explanation  of  the  origin  and  growth  of  the 
movement  described  in  these  pages. 

3  Cf .  Fetter,  The  Theory  of  the  Middleman,  and  Kiely,  The  Middleman 
in  Practice,  both  in  Bailey,  Cyclopedia  of  American  Agriculture,  Vol.  IV, 
pp.  239-243 ;  Taylor,  Henry  C,  Agricultural  Economics,  pp.  357-365 ;  Friday 
David,  The  Economic  Function  of  the  Middleman,  a  paper  contributed  to 
the  National  Conference  on  Marketing  and  Farm  Credits,  1915,  pp.  113-123. 


CHARACTERISTICS  AND  COSTS  OF  MARKETING  3 

Regardless  of  whether  these  functions  are  performed 
by  middlemen  or  by  the  grain  growers  themselves,  it  is  evi- 
dent that  the  marketing  of  grain  is  a  gigantic  task  when  we 
contemplate  the  amount  that  is  yearly  shipped  from  the 
producing  areas  to  the  consuming  centers.  The  annual  pro- 
duction of  grain  in  this  country  is  stupendous  in  volume, 
and  almost  one-half  of  this  immense  amount  is  not  consumed 
in  the  locality  where  it  is  grown.  Thus,  according  to  the 
United  States  Department  of  Agriculture,  the  volume  of 
production  in  1918  for  the  three  principal  grain  crops  was 
as  follows:  wheat,  940,987,000  bushels;^  oats,  1,248,310,- 
000  bushels;'*  corn,  2,917,450,000  bushels.^  In  that  same 
year,  of  this  amount  565,433,000  bushels  of  wheat,^  474,- 
139,000  bushels  of  corn,«  and  321,223,000  bushels  of  oats » 
were  shipped  out  of  the  county  in  which  the  grain  had  been 
produced. 

Almost  the  whole  amount  of  grain  that  is  not  consumed 
in  the  immediate  locality,  passes  through  country  grain 
elevators  or  warehouses  ^°  before  it  is  shipped  to  the  termi- 
nal or  central  markets  for  milling  and  final  distribution  to 
the  consumer.  From  this  fact  it  readily  follows  that  ele- 
vators and  warehouses  serve  an  important  economic  pur- 
pose in  every  town  of  a  surplus  producing  grain  section. 
Their  primary  purpose  is  to  provide  a  local  market  for  the 
surplus  grain  of  the  community.     They  serve  also  as  col- 


*  Yearbook,  1919,  p.  525. 
«  Opus.  cit.  p.  535. 
•Loc.  cit.  p.  513. 
7  Loc.  cit.  p.  525. 
^  Loc.  cit.  p.  535. 
»  Loc.  cit.  p.  513. 

10  Warehouses  are  distinguished  from  elevators  principally  by  their  type 
of  construction.  The  warehouses  are  low  buildings  especially  adapted  for 
handling  grain  in  sacks,  while  the  elevator  is  a  high  building  especially 
adapted  for  handling  grain  in  bulk.  The  warehouse  was  more  common 
formerly  when  sack  handling  prevailed.  In  the  North  Central  States  al- 
most all  of  the  grain  is  handled  in  bulk,  and  this  explains  why  the  number 
of  warehouses  in  this  section  is  relatively  insignificant.  Cf.  "Report  of  the 
Federal  Trade  Commission  on  the  Grain  Trade,"  Vol.  I,  Country  Grain 
Marketing,  pp.  23-25. 


4  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

lecting  points  and  as  temporary  storage  places  ^^  for  grain 
until  such  time  as  from  numerous  wagon-loads,  car  ship- 
ments may  be  made.  Frequently  the  country  elevators  are 
also  provided  with  cleaning  and  drying  machinery  to  pre- 
pare unsatisfactory  grain  for  shipment.  Sometimes  a  flour 
mill  is  conducted  in  connection  with  the  elevator,  and  usually 
sidelines,  such  as  coal,  lumber,  fencing,  cement,  and  other 
supplies,  are  also  handled.^^ 

Country  grain  elevators  from  the  viewpoint  of  owner- 
ship and  management  may  be  divided  into  various  types  ^^ 
but  it  is  sufficient  here  to  distinguish  three  classes,  namely, 
those  of  the  line  elevator  companies;  the  elevators  owned 
and  operated  by  local  or  independent  dealers;  and  those 
owned  and  operated  by  the  grain  growers  themselves 
through  an  association  or  corporation  organized  for  this 
purpose.  The  line  elevator  company  usually  has  its  head- 
quarters in  one  of  the  terminal  market  cities,  and  its  distin- 
guishing feature  is  its  ownership  and  operation  of  two  or 
more  grain  elevators  located  at  different  country  stations.^^ 
The  local  or  independent  dealers  are  individuals,  partner- 
ships, or  corporations,  that  own  and  manage  only  one  grain 


11  Sometimes  individual  growers  may  wish  to  have  their  grain  stored  in 
the  elevator  until  such  time  as  they  care  to  sell  it.  For  this  service  the 
elevator  or  warehouse  usually  charges  a  fee. 

12  Livingston  and  Seeds,  Marketing  Grain  at  Country  Points,  in  Bulletin 
558,  pp.  5-10,  U.  S.  Dept.  of  Agric. 

13  The  Federal  Trade  Commission  in  its  recent  Report  on  the  Grain 
Trade,  distinguishes  two  general  types  of  country  grain  elevators,  namely, 
the  line  and  individual  houses.  A  line  house  it  defines  as  "one  operated  by 
an  organization  which  operates  two  or  more  houses  located  at  different 
points"  (Vol.  I,  p.  30).  The  individual  house  is  "one  which  operates 
locally  only  and  is  managed  without  reference  to  the  operation  of  other 
houses  except  in  so  far  as  it  may  be  competitively  affected  by  them" 
(Ibidem).  Each  of  these  general  types  the  Commission  divides  into  four 
sub-classes.  The  line  type  of  house  is  divided  into  the  "commercial  line," 
corresponding  to  the  line  elevator  company  in  our  description ;  the  "coopera- 
tive line,"  which  is  a  collective  name  for  two  or  more  elevators  owned  and 
operated  by  a  local  association  of  grain  growers;  the  "mill  line,"  which  is  a 
collective  name  for  two  or  more  elevators  owned  and  operated  by  millers ; 
and  the  "malster  line,"  which  designates  two  or  more  elevators  owned  and 
operated  by  malsters  or  brewers.  The  same  sub-classification  is  followed 
for  the  individual  houses.  (Loc.  cit.  pp.  30-3). 

1*  While  a  line  elevator  company  must  own  and  operate  at  least  two 
elevators  before  it  can  be  called  a  line  company,  most  of  the  line  com- 
panies own  and  operate  many  more  than  that  number.  Cf.  Report  of  the 
Federal  Trade  Commission  on  the  Grain  Trade,  Vol.  I,  p.  30. 


CHARACTERISTICS  AND  COSTS  OF  MARKETING  5 

elevator;  and  they  usually  have  their  headquarters  at  the 
country  station  where  their  elevator  is  located.  The  third 
class  of  elevators  referred  to,  are  owned  and  operated  by 
associations  of  the  grain  growers  themselves  instead  of  by 
an  outside  agent.  It  is  this  feature  which  has  led  these 
elevators  to  be  classed  as  cooperative,  and  in  the  succeeding 
pages  the  terms,  farmers'  elevator  company,  cooperative 
elevator  company,  and  cooperative  grain  marketing  asso- 
ciation, will  be  used  synonomously  unless  otherwise  indi- 
cated. The  elevators  thus  owned  and  managed  are  further- 
more distinguished  from  the  line  elevator  companies  by  the 
fact  that  the  cooperative  elevator  company  generally  owns 
and  manages  but  one  elevator,"  and  has  its  headquarters 
at  the  place  where  its  elevator  is  located.^^ 

Grain  is  purchased  at  the  country  elevator  according  to 
four  methods:  at  a  flat  rate,  by  grade,  by  grade  subject  to 
dockage,  and  by  grade  after  cleaning.  The  price  paid  for 
grain  at  country  stations  is  regulated  in  the  main  ^^  by  the 
price  paid  in  the  terminal  markets.  A  margin  sufficiently 
wide  is  taken  to  cover  costs  of  operating  and  at  the  same 
time  to  provide  a  profit.^® 

Grain  is  sold  by  the  country  elevator  according  to  three 
methods:  "on  track,"  to  arrive,"  or  it  is  "consigned." 
When  the  grain  is  sold  "on  track,"  the  buyer  pays  the  freight 
charges,  and  when  the  sale  is  one  "to  arrive,"  the  seller 
pays  them.     In  both  instances,  a  specified  time,  varying 


15  Several  of  the  cooperative  elevator  companies  own  and  operate  more 
than  one  elevator.  These  companies  the  Federal  Trade  Commission  in  its 
Report  on   the   Grain   Trade,   refers   to   as    "cooperative   line"   companies. 

1*  Besides  the  owners  of  elevators  and  warehouses,  there  are  a  number 
of  other  agents  who  buy  grain  at  country  stations,  the  principal  ones  of 
whom  are  track  buyers,  who  purchase  grain  from  both  farmers  and  ele- 
vator owners,  and  resell  to  whatever  buyer  offers  the  best  price;  scoop- 
shovelers,  Ayho  buy  grain  from  the  farmers  and  usually  "scoop"  or  shovel 
the  grain  directly  from  the  wagon  into  the  car;  terminal  dealers,  who  are 
representatives  of  terminal  market  dealers,  and  buy  grain  directly  from  the 
farmers;  brokers,  who  buy  and  sell  grain  on  a  commission  basis.  See  Re- 
port of  the  Federal  Trade  Commission,  Opus  cit.  pp.  95-97.  The  combined 
purchasing  of  these  various  agents  does  not,  however,  affect  the  statement 
that  most  of  the  grain  shipped  from  country  stations  passes  through  the 
local  elevator  or  warehouse. 

1^  Competitive  conditions  at  country  stations  also  have   an  influence  in 
determining  the  price  paid. 
18  Livingston  and  Seeds,  Opus  cit.  pp.  6-10. 


6  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

generally  from  three  to  fifteen  days,  is  fixed  within  which 
shipment  must  be  made,  or  again,  the  grain  must  be  at  the 
destination  of  the  buyer  within  that  time  accordingly  as  the 
terms  of  sale  have  been  framed.^® 

When  grain  is  sold  either  "on  track"  or  "to  arrive,"  to 
interior  mills  or  to  dealers  in  places  where  there  is  no  in- 
spection, there  are  generally  no  other  charges  than  those 
of  freight.  Should  the  sale  be  one  "to  arrive"  and  to  a 
place  where  there  is  inspection  and  weighing,  the  consignor 
in  this  instance  pays  these  charges.  Also  in  sales  "on 
track,"  if  the  seller  guarantees  the  weight  and  grade  of  the 
shipment,  he  generally  ^ays  these  charges  to  verify  the 
guarantee.2° 

The  third  method  of  sale  is  that  of  consigning.  When 
grain  is  consigned,  it  is  sent  to  a  commission  merchant  in  a 
terminal  market  city,  who  either  sells  the  grain  at  once, 
stores  it  in  a  terminal  elevator,  or  has  it  held  in  cars  if  this 
be  the  wish  of  the  consignor.  If  the  grain  is  stored  in  a 
terminal  elevator,  the  consignor  is  credited  with  a  re- 
ceipt which  specifies  the  amount,  kind,  and  quality  of  grain 
stored.  When  the  consignor  wishes  to  sell  his  grain,  he  in- 
forms his  commission  merchant,  who  thereupon  sells  the 
grain  "in  store."  The  receipt  for  the  grain  is  then  in- 
dorsed to  the  purchaser,  and  this  indorsement  gives  him 
title  to  the  grain.  The  commission  merchant  then  renders 
an  account  sale  of  the  transaction,  whereupon  he  remits 
to  the  consignor  any  balance  due  him.^^ 

Most  of  the  grain  shipped  from  country  stations  to  the 
primary  markets,  is  bought  and  resold  on  the  grain  ex- 
changes or  boards  of  trade.  Almost  all  of  the  cooperative 
elevator  companies,  as  also  the  local  or  independent  dealers, 
sell  their  grain  on  the  exchange  by  hiring  the  services  of  a 
commission  merchant.  Those  line  elevator  companies 
whose  total  amount  of  grain  handled  is  comparatively  large, 
sell  their  grain  on  the  exchanges  through  their  own  repre- 


^^Opus  cit.  p.  11. 

20  Ibidem. 

21  Loc.  cit.  p.  12 ;  Siebel  Harris,  Methods  of  Marketing  the  Grain  Crop, 
pp.  362-65,  in  Annals  of  the  American  Academy  of  Pol.  and  Soc.  Science, 
Vol.  38    (1911). 


CHARACTERISTICS  AND  COSTS  OF  MARKETING  7 

sentatives.22  The  vast  majority  of  the  grain  sold  oii  the 
exchanges  or  boards  of  trade,  is  bought  by  the  terminal 
elevator  companies,  although  in  a  few  terminal  markets  ^^ 
much  of  it  is  bought  by  millers,  and  also  by  other  dealers. 

The  two  principal  activities  of  the  terminal  elevator  com- 
panies, in  addition  to  the  buying  and  selling  of  grain,  are 
the  storing  and  mixing  of  it.  When  they  accept  grain  for 
storage  from  country  shippers  awaiting  more  favorable 
market  conditions,  they  do  not  sell  that  grain,  nor  do  they 
mix  it  unless  requested  to  do  so.  They  demand,  however, 
a  storage  fee,  and  this  constitutes  one  of  the  sources  of 
their  profits.  Through  mixing  grain  of  various  grades,  the 
terminal  elevator  companies  can  realize  additional  profits. 
The  explanation  of  these  profits  is  bound  up  with  the  system 
of  double  inspection  in  vogue.  Grain  is  inspected  before  it 
is  stored  in  terminal  elevators  and  again  before  it  is  taken 
out.  By  judiciously  mixing  grain  of  a  higher  grade  with 
that  of  a  lower,  it  is  frequently  possible  to  mix  the  whole 
bulk  so  as  still  to  meet  the  requirements  of  the  higher  grade. 
Thus,  much  of  the  grain  that  is  bought  by  the  terminal 
elevator  companies,  is  resold  at  a  higher  grade  than  at 
which  it  was  purchased.  After  the  grain  is  thus  mixed, 
and  if  the  market  is  favorable,  the  terminal  companies  sell 
their  grain  to  exporters  and  to  other  shippers. 

This  then  in  brief  outline  describes  the  present  grain  mar- 
keting system.  It  now  remains  to  consider  what  compensa- 
tion is  demanded  by  each  of  the  agents  handling  grain  from 
the  time  that  it  enters  the  country  elevator  until  it  has  been 
sold  in  the  terminal  markets  to  the  terminal  elevator  com- 
panies, the  millers,  and  other  dealers. 

In  1913,  the  United  States  Department  of  Labor  conduct- 
ed a  survey,  the  object  of  which  was  to  "ascertain  the  rela- 
tion existing  between  wheat  prices  and  retail  prices  of 


22  In  1918,  line  elevator  companies  owned  10  memberships  on  the  Chicago 
Board  of  Trade,  according  to  the  Federal  Trade  Commission  (Report 
on  the  Grain  Trade,  Vol.  II,  p.  75).  They  also  owned  69  at  Minneapolis 
(p.  143)  ;  8  at  Kansas  City  (p.  160)  ;  13  at  Omaha  (p.  165)  ;  7  at 
Peoria  (p.  176)  ;  5  at  Indianapolis  (p.  180)  ;  4  at  St.  Louis  (p.  172),  and 
1  at  Toledo  (p.  182). 

23  Especially  in  Minneapolis,  and  to  some  extent  in  Duluth.  Opus  cit. 
pp.  143  and  155. 


8  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

flour,  and  second  to  determine  the  cost  of  distribution  or 
the  price  accretions  as  the  wheat  and  flour  pass  through  the 
various  hands  from  producer  to  consumer."  ^^  The  en- 
quiry was  limited  to  hard  winter  wheat  and  flour  made  from 
it,  and  since  Kansas  is  the  leading  State  in  the  production  of 
hard  winter  wheat,  the  data  for  the  survey  were  gathered 
from  that  State.  The  years  selected  for  study  were,  1906, 
1910,  and  1911.  Each  year  was  divided  into  two  periods, 
quotations  being  taken  for  the  months  of  March  and  Oc- 
tober.25 

According  to  the  results  of  this  survey,  the  elevator  op- 
erator usually  buys  wheat  at  about  three  cents  per  bushel 
below  the  price  at  which  he  can  sell  it  "on  track"  at  the 
time.  Naturally  the  operator  is  desirous  of  greater  profits, 
but  competition  generally  holds  him  at  this  margin.^^ 

The  freight  rate  per  car  lot  is  governed  by  the  distance 
shipped.  "The  rates  in  1911  from  the  stations  from  which 
wheat  prices  were  obtained  ranged  from  8.5  to  14.5  cents 
per  hundred  pounds,  or  5.1  to  8.7  cents  per  bushel.  An  ac- 
curate average  for  the  State  could  not  easily  be  computed, 
but  probably  a  fair  estimate  of  the  average  rate  from  the 
hard  wheat  area  in  Kansas  to  Kansas  City  is  about  12  cents 
per  100  pounds,  or  7.2  cents  per  bushel."  ^7 

Commission  men  and  jobbers  ^^  receive  on  the  average 
of  one  cent  per  bushel  for  handling  wheat.^® 

If  wheat  is  stored  in  terminal  elevators,  there  is  an  ad- 
ditional charge.  In  Kansas  City  the  charge  was  one  cent 
per  bushel  for  the  first  twenty  days  or  part  thereof,  and 
one-fortieth  of  a  cent  for  each  subsequent  day.^^ 

From  this  survey  it  is  seen  that  in  1911,  when  the  price 
level  for  all  services  was  considerably  lower  than  at  pres- 


2*  Bulletin  of  the  U.  S.  Dept.  of  Labor,  No.  130,  Wheat  and  Flour 
Prices,  from  Farmer  to  Consumer^  p.  5. 

25  Ibidem. 

26  Opus  cit.  p.  10. 

27  Lac.  cit.  p.  10. 

28  The  grain  jobber  differs  from  the  commission  merchant  in  this  that 
the  former  buys  and  sells  grain  on  his  own  account,  assuming  the  risk 
of  loss.  The  commission  merchant  buys  and  sells  for  another,  and  receives 
a  compensation  or  commission  for  his  service. 

29Loc.  cit.  p.  11. 
30  Ibidem. 


CHARACTERISTICS  AND  COSTS  OF  MARKETING  9 

ent,  the  price  to  be  paid  by  the  consumer  for  a  bushel  of 
wheat  had  increased  by  12  cents  over  the  price  received  by 
the  grower  before  the  wheat  had  been  sold  in  the  terminal 
markets.  A  survey  similar  in  scope  to  the  one  just  de- 
scribed, was  conducted  by  the  United  States  Department  of 
Agriculture  in  1914,  and  the  results  arrived  at  were  prac- 
tically identical.  In  commenting  upon  the  margins  taken 
by  the  various  agents  handling  grain,  the  report  says :  "The 
weakest  link  in  the  chain  of  marketing  Kansas  wheat  is  the 
country  elevator.  Compared  with  the  value  and  the  diffi- 
culty of  the  service  rendered,  the  margin  taken  by  the 
country  elevator  is  perhaps  larger  than  that  taken  by  any 
other  middleman  in  the  marketing  of  wheat."  ^^  This  has 
been  emphatically  the  conviction  of  many  grain  growers 
not  only  in  regard  to  the  marketing  of  wheat  but  of  other 
kinds  of  grain  as  well.  It  is  because  they  have  considered 
the  service  rendered  by  the  local  middleman  handling  grain 
not  worth  the  cost  that  they  have  organized  themselves  into 
associations  for  the  purpose  of  owning  and  operating  grain 
elevators  at  country  points.  A  review  of  their  efforts  and 
accomplishments  as  exemplified  in  the  North  Central 
States,  is  given  in  the  succeeding  chapters. 


"  House  Doc.  No.  1271,  63d  Cong.  3d  sess.,  p.  28. 


CHAPTER  II 

Historical  Survey  of  Cooperative  Grain  Marketing  in 
THE  North  Central  States 

Cooperative  grain  marketing  was  not  extensively  en- 
gaged in  by  the  grain  growers  of  the  North  Central  States 
until  the  beginning  of  the  present  century,  and  prior  to  that 
date  the  information  available  regarding  this  form  of  en- 
terprise is  very  meagre.  It  may,  however,  be  said  that  the 
origin  of  cooperative  grain  marketing  is  roughly  contem- 
poraneous with  the  close  of  the  Civil  War.  It  was  shortly 
after  that  conflict,  in  1867,  that  the  first  great  rural  organ- 
ization of  this  country,  namely,  the  Order  of  the  Patrons  of 
Husbandry,  more  commonly  known  as  the  Grange,  was 
founded,  and  through  its  activities  a  number  of  cooperative 
grain  elevator  companies  were  formed. 

Because  of  the  important  influence  that  the  Grange  has 
exercised  upon  subsequent  cooperative  efforts  among  the 
farmers  of  this  country,  it  may  be  well  to  outline  briefly  the 
salient  characteristics  of  this  organization.  The  Grange 
was  designed  to  improve  the  social,  educational,  and  eco- 
nomic status  of  the  American  farmer.  It  was  a  secret, 
fraternal  Order  of  farmers,  founded  on  December  4th, 
1867,  at  the  National  Capital.^  The  Grange  was  conceived 
and  planned  by  Oliver  Hudson  Kelley,^  a  clerk  at  the  time 
in  the  U.  S.  Post  Office  Department.  Travelling  through 
the  South,  he  was  singularly  struck  with  the  lack  of  a  pro- 
gressive spirit  among  the  farmers  of  that  region.     Being 


1  The  literature  on  the  Grange  is  very  extensive.  A  brief  exposition 
of  the  Order,  its  aims  and  achievements,  by  Kenyon  L.  Butterfield, 
may  be  found  in  the  Forum,  Vol.  3,  pp.  231-242  (April,  1901).  For  an 
extensive  treatment  and  bibliography,  the  reader  is  referred  to  Solon  Buck, 
The  Granger  Movement.  This  volume  is  the  nineteenth  in  the  Harvard 
Historical  Studies,  and  is  without  doubt  the  most  authoritative  work 
on  this  subject. 

2  Kelley  wrote  a  history  of  the  Grange,  which  contains  an  account  of  its 
origin  and  activities  in  its  early  years.  The  title  of  the  work  is:  Origin 
and  Progress  of  the  Order  of  the  Patrons  of  Husbandry  in  the  United 
States;  a  History  from  1866-1873.  Kelley  died  in  his  home  at  Washing- 
ton, D.  C,  Jan.  20,  1913. 

11 


12       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

a  Freemason  and  fully  cognizant  of  the  value  of  organiza- 
tion, he  came  to  the  conclusion  that  a  national  secret  order 
of  farmers  was  needed  to  further  the  industrial  reconstruc- 
tion necessary  in  the  South  and  at  the  same  time  to  advance 
agriculture  throughout  the  country. 

He  enlisted  the  services  of  W.  M.  Ireland,  another  clerk 
in  the  Post  Office  Department,  and  of  William  Saunders,  a 
clerk  in  the  Agricultural  Bureau,  and  conjointly  they  wrote 
a  circular,^  which  outlined  the  deficiencies  of  the  existing 
agricultural  societies,  and  at  the  same  time  proposed  a  new 
organization,  modeled  upon  the  order  of  Freemasonry.  The 
object  was  to  be  the  advancement  of  agriculture  and  the 
creation  of  a  closer  bond  of  union  among  all  the  farmers 
of  the  country. 

The  founders  immediately  framed  a  constitution  and 
worked  out  a  ritual.  They  organized  also  a  subordinate 
Grange  at  Washington,  D.  C,  to  serve  as  a  school  of  instruc- 
tion.* After  this  preliminary  work  had  been  done,  the 
scene  of  activities  shifted  to  the  Canadian  Northwest,  where, 
it  was  thought,  the  time  was  ripe  for  the  introduction  of  the 
order  because  of  the  discontent  among  the  farmers  there  and 
their  growing  desire  to  find  some  means  of  joint  action 
against  the  oppressive  railroads  and  monopolies." 

The  success  looked  for  in  the  Northwest  was,  however, 
not  achieved  at  once.  The  constitution  as  originally  drawn 
up  and  the  circulars  advertising  the  order,  emphasized  the 
fraternal,  social,  and  educational  rather  than  the  financial 
or  economic  benefits  to  be  derived  from  membership.  The 
farmers  on  the  other  hand  were  primarily  interested  here 
as  elsewhere,  in  economic  gain.  On  account  of  this  fact, 
the  Grange  soon  enlarged  the  scope  of  its  activities  so  as 
to  include  various  business  features.  Cooperative  buying 
of  farm  supplies,  selling  of  farm  produce,  the  cooperative 
manufacture  of  farm  implements,  banking  and  insurance 


*  Quoted  in  A  Documentary  History  of  American  Industrial  Society,  Vol. 
X,  pp.  74-76. 

*  S.  J.  Buck,  Opus  cit.  p.  43. 

*  For  a  description  of  the  rural  conditions  in  the  Northwest  following 
immediately  upon  the  Civil  War,  see  Albert  Shaw,  Cooperation  in  the 
Northwest,  p.  334,  in  Johns  Hopkins  University  Studies  in  Historical  and 
Political  Science,  Sixth  Series. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  13 

conducted  along  cooperative  lines — these  were  some  of  the 
business  enterprises  sponsored  by  the  National  Grange. 
These  cooperative  ventures  soon  became  the  leading  feature 
of  the  Granger  Movement,  the  leading  cause  of  its  mar- 
velous growth  during  the  years  1873-75,^  and  the  leading 
cause  of  its  equally  rapid  decline  during  the  late  seventies. 
The  various  cooperative  selling  agencies  of  the  Grange 
were  all  based  on  the  general  idea  that  the  relation  between 
the  farmer  and  the  consumer  of  his  products  had  become  too 
indirect  and  intermediate  by  the  introduction  of  an  un- 
necessarily large  number  of  middlemen,  who  were  absorb- 
ing the  farmers'  profits.  This  principle  was  clearly  stated 
in  the  platform  or  declaration  of  purposes  adopted  by  the 
National  Grange  at  its  annual  convention  in  1874: 

"For  our  business  interests  we  desire  to  bring  producers  and  con- 
sumers, farmers  and  manufacturers,  into  the  most  direct  and  friendly 
relations  possible.  Hence,  we  must  dispense  with  a  surplus  of  mid- 
dlemen, not  that  we  are  unfriendly  to  them,  but  we  do  not  need  them. 
Their  surplus  and  their  exactions  diminish  our  profits."  '^ 

It  was  with  this  purpose  of  bringing  "producers  and  con- 
sumers into  the  most  direct  and  friendly  relations  and  to 
dispense  with  a  surplus  of  middlemen,"  that  several  cooper- 
ative grain  elevator  companies  were  organized  in  the  North 
Central  States  through  the  activities  of  the  Grange.  In 
Iowa,  the  Grangers  maintained  that  they  owned  one-third 
of  the  grain  elevators  and  warehouses  in  the  State.®  Not 
so  much  success  was  achieved  in  other  States,  although  ac- 
cording to  one  writer,  "in  a  number  of  states  the  farmers 
at  the  time  owned  a  considerable  number  of  elevators.® 

Whatever  the  precise  number  of  elevator  companies  that 
may  have  been  organized  through  the  activities  of  the 


^  According  to  Professor  Buck's  computations,  the  total  number  of  mem- 
bers of  the  Grange  on  October  1,  1875,  was  758,767.  Of  these  390,734 
were  in  the  North  Central  States.     Opus  cit.  pp.  58-59. 

■^  Proceedings  of  the  National  Grange,  Seventh  Session,  1874.  Quoted 
in  A  Documentary  History  of  American  Industrial  Society,  Vol.  X,  p.  99. 

*  S.  J.  Buck,  Opus  cit,  p.  243 ;  Cf .  B.  H.  Hibbard,  Cooperation  in  the 
Grain  Elevator  Business,  in  Bailey's  "Cyclopedia  of  American  Agricul- 
ture," Vol.  IV,  p.  267.  Professor  Hibbard  says:  "It  is  reported  on  fairly 
good  authority  that  over  half  of  the  elevators  in  Iowa  were  once  in  the 
hands  of  Grange  cooperators." 

*  H.  E,  Erdman,  The  Farmers'  Elevator  Movement  in  Ohio,  p.  139, 
Bulletin  331,  Ohio  Agricultural  Experiment  Station. 


14       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

Grange,^^  most  of  them  shared  its  fate  toward  the  end  of  the 
seventies.  Badly  managed  because  of  the  farmers'  lack  of 
business  experience,  opposed  by  the  established  grain  deal- 
ers, and  unsupported  by  their  own  members  because  of 
their  loss  of  confidence  in  the  Grange  under  whose  direction 
they  were  started,  most  of  these  companies  were  short- 
lived.^^ 

At  the  beginning  of  1880,  the  Grange  in  the  North  Cen- 
tral States  as  elsewhere,  had  practically  ceased  to  func- 
tion. Since  that  time  it  has  gradually  revived,  and  is 
again  one  of  the  prominent  rural  organizations  in  the  United 
States.  At  present,  its  principal  efforts  are  directed  toward 
the  social  and  educational  improvement  of  the  American 
farmer,  its  original  aim.^^ 

The  Grange  failing  to  achieve  its  purpose,  other  organi- 
zations soon  arose  to  take  its  place.  The  most  prominent  of 
these  was  the  Farmers'  Alliance.^^  Through  its  influence 
and  activities,  cooperative  enterprises  were  formed  similar 
to  those  already  described.  But  business  cooperation  became 
more  and  more  an  incidental  feature  of  its  program  of 
social  reform.  It  sought  to  achieve  its  ends  rather  through 
political  action,  and  as  such  lost  its  immediate  industrial 
character. 

Many  cooperative  elevator  companies  were  organized 
during  the  decade  of  the  eighties.     Thirty-nine  of  these  re- 


10  The  Encyclopedia  of  Social  Reform  (Bliss,  Editor-in-Chief)  in  its 
article  on  cooperation  in  the  United  States,  says  that  at  one  time  the 
Grangers  conducted  32  elevators  in  connection  with  their  marketing  ac- 
tivities. The  Federal  Trade  Commission  in  its  recent  Report  on  the  Grain 
Trade,  states  that  nine  cooperative  elevator  companies  reported  as  having 
been  organized  prior  to  1880,  Vol.  I,  p.  47. 

11  B.  H.  Hibbard,  Opus  cit.  p.  236 ;  Erdman,  Opus  cit.  p.  139.  See  also 
general  causes  of  failure  of  the  Grange  in  Buck,  Opus  cit.  pp.  274-277; 
A.  C.  Warner,  Three  Phases  of  Cooperation  in  West,  pp.  387-391,  in  Johns 
Hopkins  University  Studies,  Sixth  Series. 

12  Paul  L.  Vogt,  Introduction  to  Rural  Sociology,  p.  249 ;  cf .  Kenyon 
L.  Butterfield,  Chapters  in  Rural  Progress,  pp.   136-162. 

13  For  an  exposition  of  the  objects  and  achievements  of  the  Farmers* 
Alliance,  the  reader  is  referred  to  Frank  Drew,  The  Present  Farmers' 
Movement,  in  "Political  Science  Quarterly,"  Vol.  VI,  pp.  282-310.  See 
also  N.  A.  Dunning,  The  Farmers'  Alliance  History  and  Agricultural 
Digest,  especially,  pp.  225-7. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  15 

ported  as  still  operating  in  1918,  when  the  Federal  Trade 
Commission  made  its  survey  of  country  grain  marketing.^* 
No  doubt  several  others  were  organized  but  disappeared 
under  the  stress  of  competition,  or  failed  because  of  poor 
management  and  non-support  on  the  part  of  their  own 
members.^*^ 

The  cooperative  elevator  movement  made  considerable 
progress  during  the  nineties,  especially  from  1895  to  1900. 
One  hundred  and  thirty-three  companies  reported  to  the 
Federal  Trade  Commission  as  having  been  organized  prior 
to  1900.^^  This  represented  an  increase  of  94  companies 
within  ten  years,  and  an  increase  of  69  since  1895,  because 
64  companies  reported  as  having  been  organized  prior  to 
that  date.i^ 

As  to  the  number  of  companies  formed  in  the  different 
states,  between  the  years  1890  and  1900,  no  definite  infor- 
mation is  vailable  except  for  Minnesota.  In  1915,  there 
were  in  that  State,  thirty  companies  that  had  been  organ- 
ized prior  to  1900.^*  On  the  other  hand,  as  Professor 
Weld's  survey  shows,  comparatively  few  companies  were 
organized  in  that  State  prior  to  1890.^^  Several  companies 
were  begun  also  in  the  States  of  North  and  South  Dakota,^*^ 
Illinois,^  and  Kansas.^^  How  many  were  organized  in  each 
of  these  States  and  how  many  were  still  in  operation  at  the 


1*  Opus  cit.  Vol.  I,  p.  47. 

15  John  L.  Coulter,  Cooperation  among  Farmers,  p.  120;  O.  N.  Refsell, 
The  Farmers'  Elevator  Movement,  p.  874,  in  "Journal  of  Political  Econ- 
omy," Vol.  22  (Nov.,  1914)  ;  L.  D.  Weld,  Farmers'  Elevators  in  Minnesota, 
p.  5,  Bulletin  152,  Agricultural  Experiment  Station;  Charles  Wolcott,  A 
Gigantic  Conspiracy;  The  Northwestern  Wheat  Ring,  pp.  16-27. 

1^  Opus  cit.  p.  47. 

1^  Ibidem.  A  number  of  the  so-called  farmers'  or  cooperative  elevators 
of  this  period  were  not  such  in  any  adequate  sense  of  the  word.  "They 
were  nothing  more  in  fact  than  independents,  the  companies  operating 
them  being  composed  largely  of  local  business  men  with  a  few  farmers 
to  give  them  the  name."    Opus  cit.  p.  81. 

18  Durand  and  Jansen,  Farmers'  Elevators  in  Minnesota^  1914-15,  p.  9. 
Bulletin  164,  Agricultural  Experiment  Station. 

18  Opus  cit.  p.  5. 

20  Charles  Wolcott,  Opus  cit.  p.  27. 

^"^  American  Cooperative  Journal,  Vol.  Ill,  p.  23    (Sept.,   1907). 

22  Nineteenth  Biennial  Report  of  the  Kansas  State  Board  of  Agriculture, 
p.  156. 


16       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

beginning  of  1900,  it  is  impossible  to  ascertain  from  avail- 
able data.  It  is  probable,  however,  that  the  majority  of 
the  companies  formed  during  this  decade  outside  of  Minne- 
sota, were  in  North  and  South  Dakota.  In  these  States, 
the  movement  had  made  some  progress  during  the  preced- 
ing decade,  and  suspicion  was  rife  among  the  farmers  there 
that  a  combination  existed  which  was  depressing  the  prices 
farmers  were  receiving  for  their  grain. 

The  relatively  growing  increase  in  the  number  of  co- 
operative elevator  companies  organized  during  the  period 
between  1890  and  1900,  and  especially  since  1895,  is  very 
probably  to  be  explained  in  the  light  of  the  changing  con- 
ditions that  began  to  surround  country  grain  marketing  at 
that  time.  As  will  presently  appear  in  detail,  the  line 
elevator  companies  and  the  local  or  independent  dealers, 
through  various  sorts  of  agreements  entered  into  among 
themselves,  were  gradually  eliminating  competition  from 
country  grain  buying,  so  that  at  the  end  of  the  decade 
competition  in  a  large  number  of  country  stations  was  prac- 
tically non-existent.  That  the  line  companies  and  the  inde- 
pendent dealers  were  guilty  of  stifling  competition,  the 
farmers  were  thoroughly  convinced.  On  the  other  hand, 
through  experience  they  had  learned  how  they  frequently 
had  brought  about  the  ruin  of  their  own  enterprises  by  not 
supporting  them  when  their  competitors  were  temporarily 
paying  higher  prices  for  grain  than  did  their  own  com- 
panies. As  a  means  of  redress,  therefore,  against  these 
growing  abuses  of  the  established  grain  dealers,  it  is  highly 
probable  that  the  farmers  resorted  more  frequently  to 
organizing  elevator  companies,  and  that  they  supported 
them  even  though  their  competitors  were  offering  appar- 
ently better  bargains. 

It  is  indeed  primarily  in  the  light  of  the  abuses  practiced 
by  the  line  elevator  companies  and  the  local  or  independent 
dealers  that  the  cooperative  elevator  movement  can  be  prop- 
erly understood.  In  these  abuses  lie  the  causes  which 
prompted  the  grain  growers  anew  to  organize  elevator 
companies  even  though  their  previous  efforts  had  ended  in 
frequent  failure. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING         17 

There  is  little  doubt  that  a  considerable  amount  of  compe- 
tition prevailed  in  country  grain  buying  prior  to  1890.^' 
Competition,  however,  gradually  gave  way  to  combination, 
which  tended  to  minimize  competition  or  in  very  many 
places  to  eliminate  it  altogether.  The  state  of  affairs 
thereby  created  was  the  cause  of  widespread  dissatisfaction 
among  the  farmers.  Their  repeated  complaints  induced 
Senator  LaFollette  to  introduce  into  the  United  States  Sen- 
ate, on  June  25,  1906,  a  resolution  directing  the  Interstate 
Commerce  Commission  to  make  an  investigation  of  the 
alleged  abuses  existing  in  grain  buying  and  shipping.^* 
The  resolution  was  adopted,  and  on  October  15th  of  the 
same  year  the  Commission  began  its  hearings  at  Chicago. 
Hearings  were  held  also  at  Kansas  City,  Omaha,  Des 
Moines,  Milwaukee,  Minneapolis,  and  Duluth.^^ 

These  hearings  disclosed  the  fact  that  the  dissatisfaction 
of  the  grain  growers  was  not  without  justification.  Vari- 
ous agreements  or  arrangements  were  shown  to  have  ex- 
isted toward  the  end  of  the  last  and  at  the  beginning  of 
the  present  century,  all  of  which  had  the  general  effect  of 
eliminating  competition  in  country  grain  buying.  In  the 
Northwestern  States  of  Minnesota,  North  Dakota,  and 
South  Dakota,  these  agreements  were  particularly  preva- 
lent among  the  line  elevator  companies,^^  but  the  local  deal- 
ers also  were  frequently  partners. 

One  of  these  agreements  operated  as  follows:  It  was 
first  decided  what  percentage  of  the  grain  at  a  country 
station  each  elevator  operating  there  should  receive.  Those 
elevators  that  received  more  than  their  allotted  percentage 


23  See,  however,  Wolcott,  Opus  cit.  That  there  was  much  dissatisfaction 
prior  to  that  date  among  the  grain  growers  of  Minnesota,  North  and 
South  Dakota,  because  of  alleged  abuses  in  country  grain  buying,  is  un- 
questioned. That  abuses  existed  similar  in  kind  to  the  ones  to  be  de- 
scribed, is  also  established,  but  there  is  no  evidence  that  they  were  as 
prevalent  as  during  the  latter  nineties  and  the  first  few  years  after 
1900. 

24  Congressional  Record,  XL,  Pt.  10,  p.  9091. 

25  The  investigation  was  printed  as  Senate  Doc.  No.  278,  S9th  Cong.,  2d 
sess. 

2«  The  line  companies  were,  however,  also  far  more  numerous  in  the 
Northwest  than  were  the  local  or  independent  dealers.  See  Report  of  the 
Federal  Trade  Commission,  Opus  cit.  p.  51. 


18       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

of  grain  were  required  to  pay  a  penalty  to  those  that  got 
less  than  the  amount  to  which  they  were  entitled  in  virtue 
of  the  contract.  Each  of  these  elevators  rendered  a  state- 
ment of  its  receipts  to  a  central  office,  which  acted  as  a 
sort  of  clearing  house.  The  amounts  of  grain  purchased 
by  each  elevator  were  tabulated  by  the  central  office  and 
compared  with  the  amounts  to  which  each  elevator  was 
entitled.  Those  that  received  more  than  their  allotted 
share,  through  the  central  office  paid  the  penalty,  usually 
two  and  one-half  cents  per  bushel  on  wheat,  to  those  eleva- 
tors that  had  received  less."  One  agreement  of  this  kind 
included  forty  line  elevator  companies,  which  together  con- 
trolled approximately  950  elevators.^^ 

These  agreements  were,  however,  not  always  confined  to 
the  amount  of  grain  that  each  elevator  was  entitled  to  and 
the  penalty  to  be  imposed  for  not  living  up  to  the  agree- 
ments, but  they  included  at  times  also  arrangements  as  to 
prices  to  be  paid  and  the  amount  of  dockage  to  be  taken.-^ 

Agreements  of  this  kind  of  course  destroyed  almost  all 
incentive  to  obtain  a  fair  share  of  the  grain  at  a  country 
station  by  increasing  the  price.  If  dealers  failed  to  get 
their  fair  share  of  grain,  they  would  be  recompensed  at  the 
end  of  the  month,  or  whenever  settlement  was  made,  by 
the  penalties  enforced  on  those  who  had  received  more  than 
their  share  according  to  the  terms  of  the  contract. 

In  the  States  further  to  the  south,  namely,  Nebraska, 
Iowa,  Illinois,  and  to  some  extent  Kansas,  agreements  ex- 
isted among  the  grain  dealers,  the  purpose  of  which  was  the 
same  as  that  of  those  already  described.  In  this  territory 
the  elevators  of  the  local  or  independent  dealers  were  more 
numerous  than  those  of  the  line  companies,^®  but  apparently 
the  latter  exerted  more  influence  in  procuring  and  main- 
taining these  agreements.  Both  classes,  however,  operated 
through  the  State  Grain  Dealers'  Associations,  of  which 


27  Sen.  Doc,  Opus  cit.  pp.  932,  940,  941. 

28  Opus  cit.  p.  941. 

2»  See  "Memorandum  of  Agreement  at  Worthington,  Minn.,"  Interstate 
Commerce  Commission,  Docket  875,  Vol.  II,  1906.  Quoted  also  in  Sen. 
Doc,  Loc,  cit.  p.  970. 

30  Report  of  the  Federal  Trade  Commission,  Loc.  cit.  p.  51. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  19 

they  were  members.^^  These  associations  had  been  formed 
for  legitimate  and  laudable  purposes,^-  but  they  soon  ac- 
quired large  power  and  abused  it  so  that  they  practically 
dictated  the  price  to  be  paid  for  grain  and  the  conditions 
under  which  grain  was  to  be  bought  and  sold. 

The  following  quotation,  which  records  the  findings  of 
fact  of  the  referee  in  the  case,  State  v.  Omaha  Elevator 
Company, ^^  is  illustrative  of  the  conditions  prevailing  in 
country  grain  buying  toward  the  year  1900  and  somewhat 
later,  at  very  many  country  stations  in  the  States  just 
named.  According  to  the  findings  of  the  referee,  which  the 
court  sustained: 

"Some  time  prior  to  the  year  1899  an  association  known  as  the  Ne- 
braska Grain  Dealers'  Association  was  organized  in  this  State,  which 
adopted  a  constitution  and  by-laws  under  which  it  operated.  Its  officers 
consisted  of  a  president,  vice-president,  secretary,  treasurer,  and  a  govern- 
ing board,  consisting  of  the  president,  secretary,  and  three  other  mem- 
bers of  the  association.     *     *    * 

"There  were  about  1,200  grain  dealers,  all  told,  in  the  State  on  April 
1,  1905,  of  whom  770  belonged  to  said  Nebraska  Grain  Dealers'  Asso- 
ciation, and  about  200  more  in  sympathy  with  such  association.  To 
accomplish  the  objects  of  said  association,  *  *  *  various  expedients 
were  resorted  to  by  it,  some  of  which  were  as  follows:  (a)  A  price 
committee,  consisting  of  persons  chosen  from  five  of  the  leading  corpo- 
ration members  of  said  association,  was  formed,  whose  business  it  was 
to  fix  the  prices  which  should  be  paid  for  grain  by  the  various  mem- 
bers of  said  association  throughout  the  State,  and  the  other  regular 
dealers  who  worked  in  harmony  with  said  association.  All  such  mem- 
bers and  persons  were  notified  by  card  what  such  prices  were,  and 
as  members  of  such  association  and  regular  dealers  they  were  ex- 
pected and  required  to  fix  their  bids  for  grain  on  the  basis  of  the 
prices  sent  to  them  on  the  cards,  and  they  were  not  to  pay  any  more 
for  grain  than  other  regular  dealers  in  the  same  locality.  For  the 
purpose    of    facilitating    the    business,    the    State    was    divided    into    13 


31  In  the  Northwestern  territory,  including  Southern  Minnesota,  South 
Dakota  and  Northern  Nebraska,  the  grain  dealers  belonged  to  the  Tri- 
State  Association.  This  Association  seems  not  to  have  been  strongly  or- 
ganized nor  to  have  made  the  cooperative  elevator  companies  the  special 
object  of  attack  as  did  the  Associations  further  to  the  South.  See  Sen. 
Doc.  Loc.  cit.  pp.  10-11. 

32  See  by-laws  of  the  Iowa  State  Grain  Dealers*  Association  in  Inter- 
state Commerce  Commission  Docket  No.  875,  Vol.  II,  1906.  Quoted  also 
in  Sen.  Doc.  Loc.  cit.  p.  656. 

3375  Nebraska,  655;  110  N.  V^.,  874.  Quoted  also  in  Report  of  the 
Federal  Trade  Commission,  Loc.  cit.  p.  85. 


20  THE   COOPERATIVE   ELEVATOR    MOVEMENT 

districts,  and  it  was  the  duty  of  some  member  of  the  association  selected 
for  that  purpose  on  account  of  his  or  its  superior  location  and  facilities 
for  that  purpose,  to  send  cards  to  all  regular  dealers  in  his  district. 
The  prices  were  changed  as  often  as  the  fluctuations  of  the  market  made 
it  necessary;  sometimes  every  day  and  sometimes  less  often.  The  new 
prices  always  went  into  effect  on  the  morning  of  the  day  succeeding 
the  issuance  of  the  cards,  and  never  on  the  same  day.  In  said  manner 
and  by  said  method  uniformity  of  prices  was  maintained  among  the 
members  of  said  association  and  other  regular  dealers  over  the  State. 
Regular  dealers  were  those  who  were  in  harmony  with  the  purpose 
and  objects  of  said  association." 

Through  agreements  of  the  kind  described,  competition 
in  country  grain  buying  had  become  practically  non- 
existent in  very  many  places.  Such  conditions  prevailing, 
it  is  not  surprising  that  the  grain  growers  in  many  localities 
resorted  to  building  and  operating  grain  elevators  them- 
selves. Nor  is  it  surprising  that  their  ventures  frequently 
ended  in  failure,  for  the  elevator  companies  that  they 
organized  became  the  object  of  special  attack  by  the  estab- 
lished grain  dealers. 

At  times  the  farmers  experienced  considerable  difficulty 
in  securing  sites  on  which  to  build  their  elevators,^*  because 
the  railroads  refused  this  privilege,  offering  as  a  reason 
for  refusal  that  elevator  facilities  were  already  sufficient 
for  the  volume  of  grain  to  be  handled  at  the  local  stations. 

A  cooperative  company  once  established,  a  favorite  and 
common  method  resorted  to  by  the  line  companies  and  inde- 
pendent dealers  of  bringing  about  the  company's  failure 
consisted  in  temporarily  bidding  a  higher  price  for  grain 
than  the  market  would  warrant.^^  The  object  in  view  was 
of  course  to  create  dissatisfaction  among  the  members  of 
the  cooperative  company.  Tempted  by  the  prospect  of  im- 
mediate gain  from  the  higher  prices  paid  by  competing 
dealers  and  thinking  that  their  quantity  of  grain  contrib- 
uted to  their  own  company  could  not  materially  affect  its 
fortunes,  members  very  frequently  disposed  of  their  grain 
at  the  elevators  of  competing  dealers,^^  and  thus  they  di- 


34  Sen.  Doc.  Loc.  cit.  pp.  43,  496-502,  515,  648. 

35  Opus  cit.  pp.  498,  651. 
38  Ibidem. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  21 

rectly  contributed  to  the  more  complete  control  of  the  latter 
and  indirectly  brought  financial  disaster  to  their  own  con- 
cerns. Hence,  any  cooperative  company  which  could  hope 
to  achieve  success  in  face  of  the  destructive  competition  of 
the  grain  dealers  who  held  the  field  would  have  to  include 
some  feature  in  its  plan  of  organization  which  would  insure 
the  continued  support  of  its  members  in  spite  of  apparent 
better  bargains  at  competing  dealers. 

A  plan  of  such  "enforced  loyalty"  had  been  devised  as 
early  as  1889,  by  the  farmers  living  near  the  village  of 
Rockwell,  Cerro  Gordo  County,  Iowa."  This  protective 
measure  consisted  in  a  so-called  "penalty  clause,"  which 
they  embodied  in  the  by-laws  of  their  organization.  The 
clause  provided  that  any  member  of  the  company  who  sold 
his  grain  to  any  other  dealer  would  have  to  pay  one-half 
cent  per  bushel  to  the  company  for  every  bushel  sold  in  this 
way.  It  was  figured  that  this  rate  of  assessment  in  relation 
to  the  volume  of  grain  to  be  marketed  by  the  company 
would  be  sufficient  to  maintain  the  elevator  on  a  paying 
basis  regardless  of  whether  the  members  would  dispose  of 
their  grain  at  their  own  elevator  or  at  that  of  a  rival  dealer. 
The  results  to  be  achieved  by  this  clause  are  comprehen- 
sively stated  by  Mr.  Ref sell  in  an  article  contributed  to  the 
Journal  of  Political  Economy.^*  "Under  this  arrangement 
the  farmers'  company  would  not  be  tempted  greatly  to  bid 
a  high  price  against  its  competitor  when  doing  so  would 
involve  a  loss.  Neither  could  the  company  be  ruined  by  the 
high  price  paid  by  a  competitor,  even  though  these  prices 
would  prevent  the  farmers'  company  from  procuring  the 
grain.  The  income  would  still  be  the  same  as  before,  while 
its  expenses  would  be  slightly  decreased.  In  reality,  its 
condition  would  be  improved  by  its  being  outbid  by  its  com- 
petitor for  the  grain  marketed  by  its  own  members." 

With  this  penalty  clause  as  its  principal  weapon,  the  co- 
operative elevator  company  at  Rockwell  entered  upon  the 
struggle  against  the  firmly  entrenched  grain  dealers.    The 


»'  Brochure  entitled,  Brief  History  of  the  Farmers'  Cooperative  Groin 
Dealers'  Association  of  Iowa,  issued  by  the  Association. 
3«Vol.  22,  p.  891   (Nov.,  1914). 


22  THE   COOPERATIVE   ELEVATOR    MOVEMENT 

battle  ensuing  waxed  into  a  very  spirited  contest.  Every 
form  of  competition  was  brought  to  bear  upon  the  company, 
but  to  no  avail.  Filled  with  determination  and  willing  to 
impose  upon  themselves  the  assessment  of  one-half  cent  per 
bushel  for  the  sake  of  insuring  their  own  interests,  the 
farmers  of  Rockwell  emerged  victorious  from  the  conflict. 

The  penalty  clause  was  destined  to  play  an  important 
role  in  the  further  development  of  the  cooperative  elevator 
movement.  The  resistance  offered  the  farmers  at  Rockwell 
had  been  so  great,  however,  that  farmers  generally  were 
not  anxious  to  enter  upon  a  similar  struggle.  The  move- 
ment apparently  made  very  little  progress  in  the  States  of 
Nebraska,  Illinois,  and  Kansas  before  1900,  and  in  Iowa  it 
seems  there  were  no  companies  formed  during  the  decade 
of  the  nineties.  Gradually,  however,  here  and  there  the 
grain  growers  began  to  organize  companies,  so  that  at  the 
beginning  of  1903  there  were  seven  companies  in  Iowa  and 
15  in  Illinois,^^  some  of  which  probably  embodied  the  pen- 
alty clause  in  their  by-laws.**^  Within  one  year,  the  com- 
panies of  Illinois  had  increased  to  ninety  and  those  of  Iowa 
to  thirty.*^ 

A  number  of  local  companies  once  established,  their 
union  into  state  associations  readily  suggested  itself.  The 
farmers  began  to  realize  as  never  before  that  combination 
could  be  met  successfully  only  by  combination.  They  felt 
above  all  a  more  thorough  coordination  of  their  activities 
to  be  an  increasing  need,  if  their  companies  were  to  survive, 
not  to  speak  of  becoming  powerful  and  successful.  This 
coordination  of  activities  was  to  be  secured  through  state 
associations. 

Early  in  the  spring  of  1901,  a  convention  was  called  by 
the  grain  growers  of  Kansas  for  the  purpose  of  formu- 
lating a  plan  of  action  against  existing  abuses  in  grain 
buying,^2  j^y^  ^j^^  pi^^  formulated  did  not  embody  the  f ound- 


41  See  Table  I  in  this  Chapter,  p.  34. 

4®  The  penalty  clause  seems  not  to  have  come  into  general  use  until 
about  the  middle  of  1904.     See  Sen.  Doc.  Loc.  cit.  p.  647. 

*4  See  Table  I  in  this  Chapter,  p.  34. 

*2  C.  Matson,  A  Grain  Buyers'  Trust,  in  "American  Review  of  Reviews," 
p.  201,  Vol.  25  (Feb.,  1902). 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  23 

ing  of  a  state  association.  The  first  farmers'  state  grain 
dealers'  association  was  organized  in  Illinois,  on  February 
19,  1903.'*^  In  November  of  the  following  year,  a  similar 
organization  was  founded  by  the  companies  of  Iowa  with 
the  assistance  of  representatives  of  the  Association  of 
Illinois." 

These  two  associations,  together  with  representatives  of 
a  few  commission  firms  that  were  kindly  disposed  toward 
the  cooperative  companies,^^  now  entered  upon  an  energetic 
campaign  of  establishing  new  companies.  Within  two 
years,  notable  advances  had  been  made.  In  Illinois  the 
number  of  cooperative  companies  had  increased  from  15  in 
1903  to  125  at  the  beginning  of  1905;  in  Iowa  within  the 
same  period  the  number  had  increased  from  7  to  78. 

In  the  meantime  the  line  companies  and  the  independent 
dealers  were  becoming  somewhat  alarmed  at  the  progress 
the  cooperative  elevator  movement  was  making.  The  old 
practice  of  increasing  prices  temporarily  at  a  country  sta- 
tion where  a  new  company  was  organized  proved  no  longer 
effective  because  of  the  penalty  clause,  which  apparently 
most  of  the  companies  embodied  in  their  by-laws.*^ 

To  show  how  the  penalty  clause  in  some  places  was  grad- 
ually curbing  the  practice  of  raising  prices  at  a  country 
station  when  a  cooperative  company  was  begun,  reference 
is  made  to  the  incident  cited  by  Mr.  Matson  in  an  article 
contributed  to  the  Review  of  Reviews.*'^  The  grain  growers 
of  Solomon,  Kansas,  had  organized  an  elevator  company 
with  the  penalty  clause  as  a  feature  of  the  plan.     Soon 


*^  W.  M.  Stickney,  Grain  Growers  Reduce  the  Cost  of  Distribution,  in 
"Annals  of  the  American  Academy  of  Political  and  Social  Science,"  p. 
203,  Vol.  50. 

**  Brochure,  entitled,  Brief  History  of  the  Farmers'  Cooperative  Grain 
Dealers'  Association  of  Iowa,  issued  by  the  Association. 

**  As  will  presently  appear,  the  commission  firms  in  the  terminal  mar- 
kets were  being  prevailed  upon  to  refrain  from  doing  business  with  the 
cooperatives.  Those  firms  refusing  to  comply  with  this  demand,  thereupon 
found  their  interests  tied  up  with  those  of  the  cooperative  companies. 
Having  once  cast  their  lot  with  the  latter,  not  only  charitable,  but  also 
business  motives  counselled  active  participation  in  strengthening  the  exist- 
ing companies  and  helping  to  form  new  ones. 

**  About  75  per  cent  of  the  companies  of  Iowa  employed  a  penalty 
clause.     Sen.  Doc.  Loc.  cit.  p.  646. 

*^Vol.  25,  p.  203  (Feb.,  1902). 


24  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

after  the  cooperative  elevator  was  opened,  the  price  for 
grain  was  advanced  by  the  line  elevator  company  to  a  point 
which  should  make  the  members  of  the  cooperative  com- 
pany dissatisfied  with  the  price  they  were  receiving  at  their 
own  elevator.  The  line  companies  had  been  paying  48 
cents  per  bushel  for  wheat,  but  the  line  elevator  operating 
at  Solomon  ordered  the  price  to  be  advanced  to  55  cents  per 
bushel.  The  cooperative  company  was  paying  only  52 
cents  per  bushel.  Instead  of  attempting  to  meet  the  ad- 
vance in  price,  the  manager  weighed  the  grain  that  the 
members  brought,  and  they  in  turn  sold  it  to  the  line  com- 
pany. Afterwards  they  returned  to  their  own  elevator  and 
deposited  one  cent  for  every  bushel  they  had  sold,  one  cent 
per  bushel  being  the  rate  of  assessment  prevailing  in  this 
company.  This  one  cent  per  bushel  was  sufficient  to  main- 
tain the  expenses  of  the  elevator  besides  affording  a  little 
profit.  Thus  the  line  company,  while  seeking  to  undo  the 
cooperative  company,  was  in  fact  contributing  toward  the 
latter*s  success.  Mr.  Matson  records  the  outcome  of  the 
contest  thus:  "The  attempt  was  soon  given  up,  and  at  the 
end  of  three  weeks  the  syndicate  had  locked  its  elevator 
and  gone  out  of  business  at  Solomon." 

As  this  incident  might  lead  one  to  suspect  and  as  the 
course  of  events  showed,  the  penalty  clause  was  becoming 
an  effective  measure  against  any  arbitrary  setting  of  prices 
to  be  paid  for  grain  at  country  stations.  But  a  different 
method  of  attack  was  now  launched  in  the  Middlewestern 
territory.  Through  their  State  Grain  Dealers'  Associa- 
tions, the  line  companies  and  independent  dealers  informed 
commission  firms  in  the  terminal  markets  that  the  coopera- 
tive companies  were  "irregular  dealers,"  and  that  firms 
handling  the  shipments  of  such  dealers  could  expect  no 
patronage  from  the  regular  dealers,  namely,  those  that  were 
members  of  the  State  Grain  Dealers'  Associations  or  that 
were  in  harmony  with  their  objects. 

Commission  firms  that  persisted  in  handling  the  ship- 
ments of  the  cooperative  companies  soon  found  their  volume 
of  business  decreasing  at  an  alarming  rate.**    As  a  conse- 


*8  Sen.  Doc.  Loc.  cit.  pp.  646,  666,  672,  678. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  25 

quence,  most  of  them  acceded  to  the  demands  of  the  asso- 
ciations and  refused  to  accept  consignments  from  the  co- 
operatives. In  Chicago,  the  threat  of  the  grain  dealers* 
associations  became  so  effective  toward  the  beginning  of 
1903  that  there  were  only  two  commission  firms  in  the  city 
that  accepted  grain  from  the  cooperatives.  These  two  firms 
were  Lowell,  Hoit  &  Co.  and  Eschenburg  &  Dalton.*®  They 
occupied  a  very  pivotal  position  in  the  fate  and  fortune  of 
the  cooperative  elevator  movement.  Could  they  have  been 
induced  to  withdraw  their  patronage,  the  movement  in  the 
Middlewest  would  necessarily  have  broken  down  tempo- 
rarily. But  having  once  refused  to  accede  to  the  demands 
of  the  State  Grain  Dealers*  Associations,  they  assisted  the 
cooperative  movement  in  every  way  possible,  sending  their 
own  representatives  to  help  organize  new  companies.^^ 

Special  effort  was  made  by  the  State  Grain  Dealers' 
Associations  to  win  over  the  firm  of  Lowell,  Hoit  &  Co. 
This  commission  firm,  like  the  others,  had  been  requested 
to  refrain  from  accepting  grain  from  the  cooperative  com- 
panies, but  as  already  indicated  it  refused  to  comply  with 
the  request.  A  more  insidious  form  of  attack  was  now 
resorted  to  in  order  to  win  over  this  firm  also.  During  the 
investigation  of  the  Interstate  Commerce  Commission,  a 
circular  letter  was  presented,  dated  August  31,  1904, 
signed  by  Mr.  George  A.  Wells,  then  Secretary  of  the  Iowa 
State  Grain  Dealers*  Association,  and  addressed  to  "The 
Members,**  and  this  letter  requested  them  to  correspond 
with  Lowell,  Hoit  &  Co.,  with  a  view  to  giving  them  ship- 
ments.   To  quote  directly  from  the  letter: 

"My  purpose  is  to  thus  place  them  under  sufficient  obligation  to  the 
members  of  this  Association,  so  that  they  will  consider  it  for  their 
best  interest  to  confine  their  dealings  in  the  future  to  the  firms  that 
are  recognized. 

"Do  not  raise  the  question  about  the  Farmers'  Elevator  Companies 
in  your  first  letter,  but  take  that  up  with  them  later,  after  having  given 
them  some  business.  Please,  keep  this  matter  confidential  and  advise 
me  of  your  action  and  results."  ^^ 


4»Loc.  cit.  p.  646. 

^^  See  Report  of  the  Federal  Trade  Commission,  Loc  cit.  p.  90. 
^'^  Interstate  Commerce  Commission,  Docket  875,  Vol.  II,  1906.     Quoted 
also  in  Sen.  Doc.  Loc.  cit.  p.  667. 


26  THE   COOPERATIVE  ELEVATOR   MOVEMENT 

The  method  adopted  by  the  grain  dealers'  associations  of 
winning  over  commission  firms  consisted  not  so  much  in 
assuming  an  attitude  of  opposition  to  the  cooperative  ele- 
vator companies  in  general,  but  only  to  those  which  had  the 
penalty  clause  in  their  by-laws.  Thus,  in  a  letter  dated 
August  17,  1904,  Mr.  Wells  enumerated  several  companies 
not  recognized  by  the  Iowa  Grain  Dealers'  Association  "for 
the  reason  that  they  are  organized  on  the  Rockwell  plan  of 
making  assessments."  ^^  In  this  way  a  few  companies  were 
induced  to  eliminate  the  clause,  and  also  to  become  members 
of  the  state  association.^^ 

While  the  threatened  and  actual  boycott  of  commission 
firms  no  doubt  was  a  serious  temporary  obstacle  to  the  co- 
operative companies  and  materially  hindered  the  general 
progress  of  the  movement  for  some  time,  nevertheless,  the 
boycott  could  not  be  universally  enforced.  A  few  commis- 
sion firms  continued  to  accept  shipments  from  them,  nor  did 
they  discriminate  against  those  that  were  organized  "on  the 
Rockwell  plan  of  making  assessments." 

The  grain  dealers'  associations  realized,  however,  that  it 
was  this  plan  of  making  assessments,  or,  in  other  words, 
the  penalty  clause,  which  in  a  large  measure  accounted  for 
the  success  of  the  cooperative  companies.  It  was  felt  that 
after  all  if  this  clause  could  be  eliminated,  the  progress  of 
the  movement  might  yet  be  stayed.  The  possibility  of  hav- 
ing the  clause  eliminated  through  a  decision  of  the  courts 
still  remained  open. 

It  should  be  remembered  that  the  reason  advanced  by 
the  grain  dealers'  associations  for  their  opposition  to  the 
clause  was  their  conviction  that  the  clause  was  illegal.  Mr. 
Wells,  in  testifying  before  the  Interstate  Commerce  Com- 
mission, submitted  a  list  of  dealers  recognized  by  the  Iowa 
Grain  Dealers'  Association,  and  from  this  list  were  excluded 
the  companies  "who  conduct  their  business  according  to  the 
penalty  clause  plan,  which  plan  according  to  the  best  legal 


52  Interstate  Commerce  Commission,  Docket  875,  Vol.  II,  1906.     Quoted 
also  in  Sen.  Doc.  Loc.  cit.  p.  668. 
52  Sen.  Doc.  Loc.  cit.  p.  647. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  27 

advice  v^e  can  obtain  is  illegal."  ^*  It  was  declared  that  a 
company  operating  under  the  penalty  clause  was  collecting 
penalties  or  assessments  from  those  who  were  not  selling 
grain  to  it  and  that  these  penalties  were  providing  part  of 
the  expenses  of  operating  the  elevator.  In  consequence 
such  a  company  buying  grain  would  not  have  to  buy  it  at 
a  margin  sufficiently  wide  out  of  which  to  pay  operating 
expenses,  while  its  competitor  would  have  to  pay  a  price 
higher  than  the  market  would  warrant.  Such,  however, 
was  not  the  view  presented  by  the  proponents  of  the  co- 
operative movement.  Mr.  Messerole,  then  Secretary  of  the 
Iowa  Farmers'  Grain  Dealers'  Association,  and  editor  of 
the  American  Cooperative  Journal,  offered  the  following 
in  defense  of  the  clause: 

"No  sooner  did  this  farmers'  elevator  come  into  existence  than  efforts 
were  made  by  this  powerful  combination  to  disrupt  these  companies  and 
rid  themselves  of  this  competition  by  paying  a  higher  price  to  the  members 
than  the  market  would  afford.  As  a  result  of  this  we  have  the  penalty 
clause.  .  .  .  It  is  not  in  restraint  of  trade,  because  it  has  not  been 
against  public  interest.  A  competitor  is  a  middlnnan  and  not  the  public. 
This  is  the  openly  expressed  opinion  of  Judge  Cochran  of  the  circuit  court 
of  Monticello,  111."  ^^ 

The  clause  was  brought  before  the  circuit  court  of  Monti- 
cello,  111.,  toward  the  end  of  1911.  Suit  was  brought  against 
The  Farmers'  Grain  Company,  alleging  that  the  penalty 
clause  embodied  in  its  by-laws  was  against  public  policy 
and  implied  a  restraint  of  trade.  Judge  Cochran,  who 
heard  the  case,  did  not  sustain  the  charge  for  the  reason 
already  advanced.'^'' 

The  legal  status  of  the  penalty  clause  has  not  been  defi- 
nitely settled.  Suit  was  brought  in  1913  against  a  local  live- 
stock shipping  association  in  Iowa,  which  tried  to  enforce 
such  a  clause.     The  Supreme  Court  permanently  enjoined 


^*  Interstate  Commerce  Commission,  Docket  875,  Vol.  II,  1906.     Quoted 
also  in  Sen.  Doc.  Loc.  cit.  658. 

55  Interstate  Commerce  Commission,  Docket  875,  Vol.  II,  1906.     Quoted 
also  in  Sen.  Doc.  Loc.  cit.  p.  651. 

56  American  Cooperative  Journal,  Vol.  VII,  p.  342. 


28  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

the  association  from  enforcing  it  because  the  court  consid- 
ered it  to  be  in  restraint  of  trade.  "^^ 

The  cooperative  elevator  companies  soon  enlarged  their 
activities  so  as  to  include  the  handling  of  coal,  lumber,  and 
other  farm  supplies.  They  encountered  considerable  diffi- 
culty at  first  in  this  regard,  in  as  far  as  wholesalers  in  these 
commodities  refused  to  sell  to  them,''^  fearing  that  they 
would  be  boycotted  by  the  retail  dealers.  This  seems  to 
have  been  true  especially  in  regard  to  coal,  a  commodity 
which  most  of  the  companies  handled. ^^  But  this  difficulty 
did  not  present  a  serious  obstacle  to  the  progress  of  the 
cooperative  movement. 

All  the  various  forms  of  attack  directed  against  these 
companies  failed  of  their  primary  purpose.  In  fact,  they 
had  the  very  opposite  effect.  The  policy  of  opposition,  as 
the  Federal  Trade  Commission  says  in  its  recent  Report 
on  the  Grain  Trade,  was  from  every  angle  a  short-sighted 
and  mistaken  one.®°  "There  is  every  reason  to  believe  that 
it  greatly  stimulated  the  development  of  the  cooperatives, 
for  in  the  action  taken  by  the  regular  elevators  to  suppress 
the  movement  the  farmers  undoubtedly  saw  the  confirma- 
tion of  all,  and  in  fact  more  than  all,  that  they  believed 
as  to  prices  that  were  paid  for  grain  by  the  existing  ele- 
vator concerns,  and  as  to  their  methods  and  practices  in 
general."  ^'^  No  doubt  much  of  the  progress  of  the  move- 
ment, especially  within  more  recent  years,  has  been  due 
also  to  the  assistance  given  the  local  companies  by  the  grain 
dealers*  associations  and  kindred  organizations,  which  the 
farmers  founded  for  the  promotion  of  their  common  in- 


^"^  Reeves  v.  Decorah  Farmers'  Cooperative  Society,  140  N.  W.,  844. 
Among  the  cooperative  elevator  companies,  the  clause  has  gone  out  of  use 
almost  entirely.  A  considerable  number  of  them  perhaps  have  it  still  in 
their  by-laws,  but  they  rarely  if  ever  attempt  to  enforce  it,  and  the  advisa- 
bility of  its  use  as  a  coercive  measure  compelling  members  to  sell  their 
grain  to  their  own  company  is  seriously  questioned. 

^^  Brief  History  of  the  Farmers  Cooperative  Grain  Dealers  Association 
of  Iowa,  issued  by  the  Association ;  O.  N.  Refsell,  Opus  cit.  p.  984-5. 

69  Ibidem. 

«o  Vol.  I,  p.  91. 

«i  Ibidem. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  29 

terests.  But  whatever  the  precise  reasons  influencingr  the 
grain  growers  of  a  locality  in  each  particular  instance  to 
organize,  the  fact  remains  that  the  cooperative  elevator 
movement  has  continued  to  spread  at  an  increasing  rate, 
and  today  is  strongly  represented  in  all  of  the  North  Cen- 
tral States,  and  even  beyond.^^ 

Knowledge  of  the  increase  in  the  number  of  companies 
from  year  to  year  and  the  gradual  spread  of  the  movement 
to  all  of  the  North  Central  States  may  be  gleaned  from  the 
accompanying  tables.  Mr.  Refsell  has  shown  this  increase 
in  number  and  spread  in  area  for  the  period  from  1903- 
1913.^^  Table  I  reproduces  the  results  of  his  investigation. 
The  table  has,  however,  been  slightly  altered  in  as  far  as 
supplementary  data  have  been  included  which  recent  sur- 
veys have  made  available.  The  number  30  has  been  in- 
cluded for  Minnesota  for  the  years  1903-1905,  since  it  is 
learned  from  a  survey  conducted  in  that  State  in  1916  that 
there  were  then  30  companies  which  had  been  organized 
prior  to  1900.^*  Similarly,  from  a  survey  conducted  in 
Ohio,  information  is  at  hand  for  years  prior  to  1913,  which 
Mr.  Refsell  does  not  include.^*^  A  number  which  is  very 
probably  incorrect  is  the  one  which  Mr.  Refsell  cites  for 
Kansas  for  1913.  Thirty-two,  which  is  the  figure  he  cites, 
represents  the  companies  that  were  affiliated  with  the 
Farmers'  Grain  Dealers'  Association,^^  but  the  actual  num- 
ber of  companies  in  the  State  at  the  time  was  no  doubt 
considerably  greater.  This  view  is  confirmed  by  the  fact 
that  in  1914  there  were  149  companies  in  Kansas,  which 
would  represent  an  abnormal  increase  in  number. 


^2  There  are  many  cooperative  elevator  companies  in  other  States,  espe- 
cially in  Montana,  Oklahoma,  and  Colorado.  American  Cooperative  Journal^ 
passim.   Cf.    Report  of  the  Federal  Trade  Commission,  Loc.  cit.  p.  92. 

^^  The  Farmers'  Elevator  Movement,  in  "Journal  of  Political  Economy," 
Vol.  22,  p.  987  (Dec,  1914). 

®*  Durand  and  Jansen,  Opus  cit.  p.  9. 

^'^  Erdman,  Opus  cit.  p.  141. 

««  American  Cooperative  Journal,  Vol.  VIII,  No.  8,  p.  670  (April,  1913). 


30 


THE  COOPERATIVE   ELEVATOR   MOVEMENT 


Table  I — Showing  the  number  of  cooperative  elevator  com- 
panies in  different  states,  1903-1913  *' 


STATE 

1903 

1904119051 1906 

1907  1908 

1909  1910 

1911|1912 

1913 

Illinois 

Iowa 

15 

7 

30 

90 
30 

1 
30 

125 
78 

1 
30 

125 
175 
1 
150 
85 
100 

150    170 
200i  209 

2        2 

170    225 
250   300 

300 
324 
7 
240 
300 
200 
200 

300 
347 
19 
277 
350 
220 
200 

300 

Ohio 

3 

205 

85 

150 

160 

4 

224 

85 

200 

?no 

19 

Minnesota 

168 

85 

100 

178 

85 

100 

140 

307 

North  Dakota 

South  Dakota 

Nebraska 

350 
220 
200 

Kansas 

Total.. 

S? 

1S1 

?S4 

636 

70S 

884 

1023  123X 

1571 

1713 

177S 

Since  1913  the  movement  has  spread  rapidly,  not  only 
within  the  States  for  which  statistics  have  just  been  cited, 
but  in  all  the  North  Central  States.  To  show  the  compara- 
tive growth  of  the  movement  within  this  area,  statistics 
have  been  gathered  for  the  period  from  1913-1921.  Table 
II  reproduces  the  results  of  this  investigation.  In  reading 
the  table  it  should  be  remembered  that  the  figures  adduced 
represent  approximately  the  number  of  companies  and  not 
the  number  of  elevators  owned  by  them.  The  number  of 
elevators  exceeds  somewhat  the  number  of  companies,  since 
some  of  the  companies  operate  more  than  one  elevator.^* 


6s  The  Federal  Trade  Commission  in  its  Report  on  the  Grain  Trade  dis- 
tinguishes between  two  kinds  of  cooperative  elevator  companies,  namely,  the 
individual  and  the  line.  Under  cooperative  line  companies  it  classes  those 
which  own  and  operate  more  than  one  elevator.  That  the  number  of  co- 
operative line  companies  and  the  elevators  owned  by  them,  is  compara- 
tively small,  may  be  gleaned  from  the  fact  that  the  elevators  reporting  un- 
der this  class,  constituted  only  1.06  per  cent  of  the  total  number  of  all 
types  of  elevators  reporting  to  the  Commission,  while  the  individual  co- 
operative companies,  namely,  those  owning  and  operating  but  one  elevator 
constituted  18.4  per  cent.  Vol.  I,  p.  328.  The  cooperative  line  companies 
are  found  chiefly  in  Illinois,  South  Dakota,  and  Kansas,  judging  from  the 
comparative  number  reporting  from  the  different  States.  Ibidem.  Mr. 
Millard  Myers,  the  editor  of  the  American  Cooperative  Journal,  gives  it  as 
a  personal  opinion  that  the  number  of  elevators  exceeds  the  number  of 
companies  probably  by  10  per  cent. 

®'  Mr.  Ref sell  adds  the  following  as  an  explanatory  footnote :  "The 
figures  in  the  table  are  not  in  all  cases  strictly  correct  but  approximately 
so.  Accurate  statistics  are  not  available.  In  cases  where  the  figures  for  a 
given  year  are  missing,  the  figures  for  the  preceding  year  have  been  in- 
serted. The  table  is  compiled  from  reports  of  annual  meetings  of  state 
associations,  as  published  in  the  American  Cooperative  Journal." 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING 


31 


Table  II — Showing  the  growth  of  the  cooperative  elevator 
movement  in  the  North  Central  States,  1913-1921  ®® 


STATE 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

1921 

Iowa 

350 

350 

300 

270 

220 

200 

149 

35 

25 

19 

13 

11 

360 

400 

300 

278 

220 

230 

200 

48 

45 

19 

13 

11 

387 

425 

300 

299 

240 

247 

242 

73 

45 

19 

13 

11 

433 

450 

327 

331 

250 

326 

242 

90 

60 

19 

13 

11 

450 

500 

351 

360 

306 

353 

368 

93 

60 

98 

13 

11 

467 

530 

409 

385 

306 

391 

400 

140 

100 

98 

13 

11 

525 

550 

495 

420 

326 

462 

500 

300 

149 

98 

72 

75 

637 

North  Dakota 

551 

Illinois 

607 

Minnesota  (70)     . .                  ... 

4?8 

South  Dakota  (71) .              .... 

3?Q 

Nebraska ...                        

494 

Kansas  (73) 

Ohio  (73) 

572 
3?4 

Indiana  (74) 

??S 

Wisconsin  (75) 

88 

Missouri  (76) 

98 

Michigan  (77) 

8P 

Total 

1942 

2124 

2301 

2552 

2963 

3250 

3972 

4442 

At  the  beginning  of  1914  the  Office  of  Markets  and  Rural 
Organization  of  the  U.  S.  Department  of  Agriculture  under- 
took a  survey  of  all  cooperative  marketing  and  purchasing 
associations  among  the  farmers  of  the  United   States." 


^^  The  un-annotated  figures  in  this  table  are  derived  from  three  sources : 
Reports  presented  at  the  annual  conventions  by  the  Secretaries  of  the 
Farmers'  State  Grain  Dealers'  Associations,  as  published  in  the  American 
Cooperative  Journal,  the  official  organ  of  the  movement;  reports  of  the 
State  Secretaries  to  the  writer  in  which  they  supplement  or  revise  the 
annual  reports;  miscellaneous  reports  now  and  then  published  in  the 
American  Cooperative  Journal. 

These  figures  represent  approximately  the  number  of  companies  at  the 
beginning  of  the  year  in  which  they  are  listed.  Sometimes  the  annual 
conventions  are  held  late  in  autumn.  In  these  instances  the  figures  have 
been  carried  forward  to  the  following  year.  In  all  cases  where  figures  for 
the  succeeding  year  could  not  be  obtained,  those  of  the  preceding  have  been 
inserted. 

'0  For  the  years  1914  and  1915,  the  figures  are  taken  from  L.  D.  Weld, 
Opus  cit.  p.  6;  for  the  years,  1916-19,  from  Black  and  Robotka,  Opus  cit.  23. 

'^  For  the  year  1914,  the  figures  are  taken  from  O.  B.  Jesness  and  W.  H. 
Kerr,  Opus  cit.  p.  16. 

'2  For  the  years,  1914-18,  the  figures  are  taken  from  H.  E.  Erdman, 
Opus  cit.  p.  141. 

'3  For  the  year  1914,  the  figures  are  taken  from  O.  B.  Jesness  and  W.  H. 
Kerr,  Opus  cit.  p.  16. 

'*  For  the  year,  1914,  ibidem;  for  the  years,  1918-20,  from  Hibbard  and 
Hobson,  Cooperation  in  Wisconsin,  p.  14,  Bulletin  282,  1917,  Agricultural 
Experiment  Station. 

''^  For  the  years,  1914-17,  the  figures  are  taken  from  O.  B.  Jesness  and 
W.  H.  Kerr,  Opus  cit.  p.  16. 

'^  For  the  year,  1914,  ibidem. 

^^  The  results  of  the  survey  were  published  in  the  Bulletin  of  Jesness  and 
Kerr,  Opus  cit. 


32  THE   COOPERATIVE   ELEVATOR    MOVEMENT 

From  this  survey  an  estimate  as  to  the  number  of  partici- 
pants in  the  movement  may  be  arrived  at.  The  average 
membership  of  a  cooperative  elevator  company,  according 
to  this  survey,  was  111.'^®  Assuming  the  average  of  1914 
to  be  the  average  membership  of  a  company  in  1921,  the 
total  m^embership  would  be  493,062/^  From  data  received 
as  to  non-members  doing  busines  with  the  1,637  elevator 
companies  reporting  to  the  Office  of  Markets,  it  was  esti- 
mated that  their  number  would  approximate  125,000.^** 
Preserving  this  basis  of  proportion,  the  number  of  non- 
members  at  least  occasionally  doing  business  with  the  4,442 
cooperative  elevator  companies  of  the  North  Central  States 
would  approximate  333,000. 

The  Office  of  Markets  in  its  survey  arrived  at  estimates 
also  as  to  the  volume  of  business  transacted  by  the  indi- 
vidual company.  For  the  North  Central  States  the  average 
approximated  $129,000.®^  This  estimate,  however,  does  not 
adequately  reflect  the  volume  of  business  in  terms  of  money 
transacted  at  the  present  time,  because  the  price  level  both 
for  grain  and  other  commodities  handled  by  the  cooperative 
elevator  companies  was  considerably  higher  at  the  begin- 
ning of  1921  than  in  1914,  despite  the  recent  decline  in  the 
prices  of  agricultural  products.  Thus,  in  Minnesota  the 
average  volume  of  business  transacted  by  278  companies 
in  1914  was  $107,901,^2  ^hji^  j^  1918,  when  prices  for 
grain  and  other  commodities  had  increased  very  consider- 
ably, the  average  volume  of  business  transacted  by  each 
company  in  that  State  was  $232,423.^^    This  is  even  proba- 


■^8  The  average  for  each  of  the  North  Central  States  was  as  follows : 
Illinois,  104;  Indiana,  104;  Iowa,  119;  Kansas,  93;  Michigan,  176;  Minne- 
sota, 125;  Missouri,  115;  Nebraska,  99;  North  Dakota,  74;  Ohio,  106; 
South  Dakota,  98 ;  Wisconsin,  122. 

■^^  Total  membership  obtained  by  multiplying  average  by  total  number  of 
companies. 

80Loc.  cit.  p.  29. 

*i  Average  volume  of  business  arrived  at  by  dividing  total  volume  by  12, 
the  number  of   States  in  the  North  Central  Group. 

*2  L.  D.  Weld,  Opus  cit.  p.  6.  According  to  the  estimates  of  the  Office 
of  Markets,  the  average  volume  of  business  transacted  by  the  companies  in 
Minnesota,  was  $111,303.    Opus  cit.  p.  18. 

8»  Black  and  Robotka,  Opus  cit.  p.  23. 


HISTORICAL  SURVEY  OF  COOPERATIVE  MARKETING  33 

bly  a  conservative  estimate  in  view  of  the  fact  that  the 
cooperative  elevator  companies  of  Minnesota  in  that  year 
handled  on  the  average  only  125,571  bushels  of  grain,  while 
according  to  the  Federal  Trade  Commission  the  average 
annual  volume  of  grain  handled  by  each  individual  elevator 
company  during  the  period  1914-18  amounted  to  153,000 
bushels.®* 

To  summarize  briefly  the  present  status  of  cooperative 
grain  marketing  at  country  points  in  the  North  Central 
States,  as  to  the  number  of  companies,  membership,  and 
volume  of  business,  it  may  be  said  that  approximately  at 
the  beginning  of  1921  there  were  within  that  region  4,442 
cooperative  companies,  representing  a  membership  of 
493,062  and  a  non-membership  of  300,000  occasionally  at 
least  trading  with  these  concerns,  and  transacting  a  total 
volume  of  business  aggregating  a  billion  dollars.®'^  The 
structure  and  functions  of  these  companies,  as  also  the 
agencies  assisting  and  promoting  them,  shall  occupy  the 
next  two  chapters. 


s*The  elevators  owned  and  operated  by  the  cooperative  line  companies 
during  that  same  period  handled  136,825  bushels,  a  considerably  higher 
average  than  that  reported  by  the  Minnesota  survey  for  the  individual  co- 
operatives of  that  State.    See  Report  on  the  Grain  Trade,  Vol.  I,  p.  117. 

86  Computed  by  assuming  $232,423,  the  figure  from  the  Minnesota  survey 
quoted  above,  to  be  the  average  annual  volume  of  business  for  an  individual 
company. 


CHAPTER  III  ^  ~ 

The  Structure  and  Functions  of  the  Local  Marketing 

Associations 

The  fundamental  unit  of  the  cooperative  elevator  move- 
ment is  the  local  company  or  association.  Hence  it  is  essen- 
tial to  know  the  plan  of  organization  of  the  local  associa- 
tions and  the  scope  of  their  activities  in  order  to  understand 
the  movement  as  a  whole.  To  present  this  twofold  phase 
of  the  study  is  the  aim  of  the  present  chapter.  It  will 
include  a  consideration  of  the  various  types  of  organization 
that  have  been  adopted  by  the  cooperative  elevator  com- 
panies. Questions  dealing  with  the  internal  management 
of  the  local  companies,  such  as  incorporation,  the  provisions 
of  by-laws,  the  volume  of  business,  and  the  distribution  of 
profits  also  naturally  find  a  place  in  this  chapter.  There 
has  furthermore  been  included  a  description  of  the  U.  S. 
Grain  Growers,  Inc.,  an  organization  recently  formed  and 
designed  to  serve  as  a  terminal  marketing  agency  for  the 
local  companies. 

In  classifying  the  cooperative  elevator  companies  of  the 
North  Central  States  into  distinct  types,  it  will  perhaps  be 
best  to  adopt  their  method  of  distributing  profits  as  the 
basis  of  classification.  Following  this  method,  they  may  be 
divided  into  two  general  types,  namely,  those  which  dis- 
tribute profits  after  the  manner  of  ordinary  stock  corpora- 
tions and  those  which  distribute  profits  after  the  manner 
of  true  cooperative  associations.  But  within  each  of  these 
general  types  there  are  differences  which  demand  that  they 
be  still  further  classified. 

Some  of  the  companies  are  organized  as  ordinary  stock 
corporations  in  all  particulars.  In  these  there  is  no  limit 
to  the  number  of  shares  a  stockholder  may  own;  voting 
power  is  in  proportion  to  the  amount  of  stock  in  which  each 
person  has  invested;  and  all  net  earnings  are  distributed 
in  the  form  of  dividends  on  the  invested  capital.     There 

35 


36       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

are,  however,  also  many  companies  which,  while  they  dis- 
tribute all  net  earnings  in  the  form  of  dividends  on  the 
invested  capital,  have  adopted  certain  cooperative  charac- 
teristics in  order  to  insure  democratic  management.  Some 
of  these  companies  adhere  to  the  "one-man  one- vote"  prin- 
ciple, in  virtue  of  which  each  member  is  allowed  only  one 
vote  regardless  of  the  amount  of  stock  he  may  own  in  the 
enterprise,  and  still  other  companies  follow  also  the  other 
cooperative  feature  of  setting  a  limitation  upon  the  num- 
ber of  shares  of  stock  in  which  a  person  may  invest. 

A  few  companies  desirous  of  utilizing  some  of  the  ad- 
vantages of  the  corporate  form  of  organization  and  at  the 
same  time  of  avoiding  some  of  its  disagreeable  features, 
such  as  the  formal  procedure  and  fee  connected  with  in- 
corporation, the  payment  of  certain  taxes  levied  upon  them, 
and  the  filing  of  numerous  reports,  have  organized  them- 
selves as  joint  stock  companies.  In  these  the  net  earnings 
are  distributed  to  each  member  in  proportion  to  the  amount 
of  capital  he  has  invested,  but  the  partnership  relation 
among  the  members  is  maintained,  and  therefore  each 
member  is  usually  liable,  jointly  and  severally,  for  all  of 
the  company's  obligations.^ 

The  companies  that  are  organized  as  true  cooperative 
associations  may  be  divided  into  two  classes,  namely,  those 
organized  with  and  those  without  capital  stock.  In  the 
cooperative  capital  stock  corporations,  each  member  is 
allowed  only  one  vote  on  all  questions  regardless  of  the 
amount  of  stock  he  may  own  in  the  enterprise ;  a  limitation 
is  set  upon  the  amount  of  stock  he  may  own;  and  all  net 
earnings,  after  the  current  or  legal  rate  of  interest  has  been 
allowed  on  the  invested  capital  and  other  expenses  have 
been  provided  for,  are  prorated  to  the  members  on  the 
basis  of  the  amount  of  business  each  one  has  transacted 
with  the  concern. 

In  those  companies  that  are  organized  as  cooperative 
associations  without  capital  stock,  certificates  of  member- 
ship are  issued  instead  of  certificates  of  stock.  The  capital 
necessary  to  conduct  the  enterprise  is  secured  through  a 


1  Cf .  J.  M.  Mehl  and  O,  B.  Jesness,  Opus  cit.  p.  6. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCMTIONS        37 

membership  fee,  other  assessments,  and  through  loans.  A 
reserve  fund  is  set  aside  from  which  to  repay  these  loans 
as  they  mature  and  to  provide  for  interest,  debts,  losses, 
depreciation,  and  miscellaneous  expenses.  As  in  the  co- 
operative companies  with  capital  stock,  the  voting  power  of 
all  the  members  is  equal  and  all  net  earnings  are  prorated 
back  to  the  members  on  the  basis  of  the  patronage  that  each 
has  contributed  to  the  enterprise. 

While  all  of  the  elevator  companies  described  may  be 
classed  as  cooperative  in  the  sense  that  the  benefits  derived 
from  these  enterprises  accrue  for  the  most  part  to  the 
patrons  through  their  cooperative  effort,  benefits  which 
would  not  have  been  secured  from  a  private  concern  owned 
and  operated  for  the  sole  purpose  of  making  profits,  still 
according  to  the  strict  definition  of  the  term  only  those 
companies  which  have  been  designated  as  true  cooperative 
associations  can  be  called  cooperative.  Only  those  embody 
the  features  which  are  generally  set  down  as  essential  be- 
fore an  enterprise  may  call  itself  truly  cooperative,  and 
some  of  the  state  cooperative  incorporation  laws — as,  for 
instance,  those  of  Kansas,  Nebraska,  North  and  South  Da- 
kota, and  Wisconsin — prohibit  a  corporation  from  using 
the  word  cooperative  in  its  name  or  title  unless  it  be  con- 
ducted in  accordance  with  these  provisions. 

What  percentage  of  the  elevator  companies  should  be 
classed  under  each  of  the  general  types  and  under  their  sub- 
classes it  is  difficult  to  state  with  accuracy  because  of  the 
lack  of  available  statistics.  Certain  it  is  that  at  the  begin- 
ning of  1914,  when  the  Office  of  Markets  and  Rural  Organi- 
zation of  the  U.  S.  Department  of  Agriculture  made  its 
survey  of  cooperative  marketing  associations,  the  vast  ma- 
jority of  the  companies  distributed  their  earnings  as  ordi- 
nary stock  corporations.  Out  of  a  total  of  1,440  companies 
reporting  from  the  North  Central  States,  73.6  per  cent 
distributed  their  profits  in  this  manner.^  But  many  of  the 
companies  had  certain  cooperative  characteristics.  To 
quote  directly  from  the  report:  "In  all  of  them  the  stock 
is  distributed  among  a  number  of  farmers;  in  some  there 


2  Jesness  and  Kerr,  Ofnis  cit.  pp.  14-24,  27. 


38  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

is  a  limit  to  the  number  of  shares  of  stock  one  person  may 
own;  often  there  are  regulations  in  regard  to  the  transfer 
of  stock;  and  many  of  these  organizations  adhere  to  the 
*one-man  one-vote'  principle.  There  are  many  instances 
where  the  stock  is  distributed  among  farmers,  few  holding 
more  than  one  share."  ^ 

According  to  the  same  survey,  26.4  per  cent  of  all  com- 
panies reporting  from  the  North  Central  States  were  truly 
cooperative  in  the  sense  that  they  distributed  their  profits 
on  the  basis  of  patronage.*  But  almost  all  of  these  com- 
panies were  cooperative  capital  stock  associations  as  op- 
posed to  cooperatives  without  capital  stock.' 

The  survey  makes  no  mention  of  companies  organized  on 
the  joint  stock  principle.  Perhaps  no  companies  of  this 
type  reported  or  the  number  of  companies  reporting  was 
so  small  as  not  to  make  it  worth  while  to  place  them  in  a 
separate  class.  This  form  of  organization  has  at  no  time 
been  adopted  to  any  notable  extent  by  the  cooperative  ele- 
vator companies  of  the  North  Central  States,  and  the  rea- 
son for  this  is  succinctly  stated  by  Mehl  and  Jesness  in 
their  Bulletin  on  The  Organization  of  Cooperative  Grain 
Elevator  Companies:  "The  joint  stock  company  is  adapted 
principally  to  small  and  compact  organizations  which  desire 
to  utilize  some  of  the  features  of  corporations  and  still  re- 
tain a  p&rtnership  relation  between  the  members.  For 
organizations  made  up  of  a  large  number  of  members  each 
having  a  comparatively  small  financial  interest  it  is  neither 
a  convenient  nor  a  desirable  form,  and  for  that  reason  it 
has  not  gained  general  favor  in  the  farmers'  elevator  field."  * 

Since  1914  the  number  of  companies  distributing  their 
profits  on  the  basis  of  patronage  has  increased  relatively  at 
a  very  rapid  rate  as  compared  with  the  companies  that 
distribute  them  in  the  form  of  dividends  on  the  invested 
capital  stock.  This  appears  from  a  comparison  of  the 
survey  just  referred  to  with  that  of  the  Federal  Trade  Com- 
mission, whose  Report  was  made  public  on  September  20, 
1920. 


3  Opus  cit.  p.  28. 

*  Loc.  cit.  pp.  14-24,  27. 

'^  Loc.  cit.  p.  27. 

«  Bulletin  No.  860,  U.  S.  Dept.  of  Agric,  pp.  2,  3. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       39 


From  the  accompanying  table,  which  is  based  upon  these 
surveys,  it  is  seen  that  out  of  a  total  of  1,440  companies 
reporting  from  the  North  Central  States  in  1914,  only  26.4 
per  cent  of  this  number  distributed  their  profits  on  the 
basis  of  patronage,  while  in  1919,^  out  of  a  total  of  1,074 
companies  reporting,^  61.1  per  cent  distributed  them  on 
this  basis.  Iowa  is  the  only  State  in  which  this  type  of 
company  shows  a  relative  decrease  in  number  during  the 
period  between  1914  and  the  beginning  of  1919,  and  Illinois 
is  the  only  other  State  in  which  it  does  not  represent  50 

Table — Showing  relative  increase  in  percentage  of  coopera- 
tive elevator  companies  paying  patronage  dividends  in 
the  North  Central  States,  during  the  period  191Jlk-1918, 
inclusive.^ 


STATE 

Total  number  reporting 

Percentage   of    total   number 
paying   patronage   dividends. 

Illinois 

Iowa 

1914 

191 

210 

18 

25 

13 

219 

11 

29 

181 

134 

260 

149 

1918 

93 

142 

10 

19 

9 

164 

7 

27 

132 

140 

178 

153 

1914 
10.9 
50.9 
33.3 
32.0 
00.0 
42.9 
36.3 
00.0 
24.3 
21.6 
35.3 
30.2 

1918 
29.0 
35.2 

Wisconsin 

Indiana 

Missouri 

Minnesota 

Michigan 

Ohio 

50.0 
52.6 
55.5 
56.1 
57.1 
70.3 

Nebraska 

South  Dakota. . 
North  Dakota . 
Kansas 

76.5 
77.8 
81.4 
92.1 

Total 

1440 

1074 

26.4 

61.1 

"^  Although  the  Report  of  the  Federal  Trade  Commission  was  not  made 
public  until  Sept.  15,  1920,  "the  field  work  was  practically  closed  at  the  end 
of  1918."  Some  field  work,  however,  was  done  also  during  1919  and  1920, 
"chiefly  in  the  way  of  checking  the  results  obtained  and  bringing  material 
other  than  schedule  matter  up  to  date  as  nearly  as  possible."  Hence  the 
figures  here  adduced  can  be  taken  to  reflect  with  fair  accuracy  the  present 
status  of  the  companies  in  this  regard.     Opus  cit.     Vol.  I,  p.  20. 

s  This  number  does  not  represent  all  of  the  companies  then  existing. 
See  Table  II,  p.  35  of  the  preceding  Chapter.  Only  this  number  an- 
swered the  enquiry  as  to  the  payment  of  patronage  dividends.  The 
Report  calls  attention  to  the  fact  which  may  also  be  gleaned  from 
the  accompanying  Table,  that  only  a  very  small  number  of  companies 
from  some  States  answered  the  enquiry,  and  that  therefore  the  re- 
sults arrived  at  for  these  States  may  not  be  quite  representative. 
Opus  cit.  pp.  92,  93. 

®  The  figures  for  1914  are  taken  from  Jesness  and  Kerr,  Opus  cit.  pp. 
14-24.  For  the  year  1918,  from  the  Report  of  the  Federal  Trade  Commis- 
sion, Vol.  I,  p.  92. 


40       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

per  cent  of  all  the  companies  in  the  State  in  question.  But 
also  in  Iowa  and  Illinois,  the  cooperative  method  of  dis- 
tributing profits  has  been  adopted  almost  without  exception 
by  the  companies  that  have  been  formed  within  the  last 
few  years.  Thus,  the  Secretary  of  the  Illinois  Farmers' 
Grain  Dealers'  Association  reports  that  58  new  companies 
were  organized  during  the  year  1918,  and  that  all  of  these 
had  organized  on  this  basis ;  ^^  that  during  the  year  1919 
eighty-six  companies  had  been  organized  and  eighty-five 
of  these  had  adopted  the  cooperative  plan.^^  Similarly,  the 
Secretary  of  the  Iowa  Association  reports  that  almost  all 
of  the  companies  are  organizing  on  the  cooperative  basis,^^ 
and  that  very  probably  50  per  cent  of  the  companies  were 
cooperative  at  the  beginning  of  1921,^^  although  he  had  no 
exact  figures  for  his  statement.  In  all  of  the  North  Central 
States  the  trend  is  very  strong  for  all  companies  to  organize 
on  the  patronage  dividend  plan.  Many  of  the  existing  com- 
panies that  have  not  as  yet  adopted  this  plan  are  reorgan- 
izing^* in  order  that  they  may  do  their  business  on  this 
basis. 

It  is  fairly  certain  that  almost  all  of  the  companies  which 
distribute  their  profits  on  the  basis  of  patronage  are  organ- 
ized as  cooperative  associations  with  capital  stock.  The 
cooperative  non-stock  association  has  not  found  favor  with 
the  grain  growers,  although  this  form  of  organization  is 
well  adapted  to  make  of  the  company  a  service  institution 
for  the  community  at  large  and  not  one  operated  for  the 
benefit  of  the  few.  There  are  two  reasons  which  have  pre- 
vented this  type  of  company  from  being  extensively 
adopted.  When  the  various  legislatures  of  the  North 
Central  States  first  enacted  laws  authorizing  cooperative 


1®  American  Cooperative  Journal,  Vol.   14,  no.  7,  p.  254. 
"  Opus  cit.  Vol.  15,  p.  22. 

12  Loc.  cit.  Vol  14,  p.  222. 

13  In  letter  to  writer. 

1*  See  "American  Cooperative  Journal,"  passim,  especially  the  annual  re- 
ports of  the  State  secretaries;  Cf.  Jesness,  Cooperative  Marketing,  p.  10, 
Bulletin  1144,  U.  S.  Dept.  of  Agric.   (1920). 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       41 

associations,  they  did  not  make  specific  provision  for  those 
without  capital  stock.  Consequently  the  companies  thus 
organized  would  have  to  forego  the  advantages  of  incor- 
poration, since  they  could  not  incorporate  either  as  ordinary 
stock  companies  or  as  cooperative  capital  stock  associa- 
tions. Incorporation,  however,  was  generally  very  highly 
desired  by  those  organizing  a  company,  since  in  this  way 
their  financial  obligations  were  definitely  limited.  But 
there  is  another  reason  more  important  why  this  type  of 
organization  has  not  found  favor  among  the  grain  growers. 
A  cooperative  elevator  company  requires  a  large  amount 
of  initial  capital.  The  average  company  at  the  present  time 
issues  a  capital  stock  approximating  $20,000.  Through 
experience  the  grain  growers  have  found  that  the  sale  of 
shares  of  stock  offers  the  most  convenient  method  of  pro- 
curing the  necessary  capital.^^ 

Cooperative  non-stock  associations  enjoy,  however,  cer- 
tain privileges  in  Federal  law  which  might  have  led  to  their 
more  general  adoption  if  similar  privileges  had  not  later 
been  extended  to  the  cooperative  capital  stock  association. 
The  first  privilege  to  be  referred  to  was  granted  in  1914, 
and  is  contained  in  the  Clayton  Amendment  to  the  Sherman 
Anti-trust  Law.  Under  this  amendment,  cooperative  non- 
stock associations  are  exempted  from  the  operation  of  the 
United  States  anti-trust  laws.  Section  VI  of  this  amend- 
ment reads  in  part: 

"Nothing  contained  in  the  anti-trust  laws  shall  be  construed  to  forbid 
the  existence  and  operation  of  .  .  .  agricultural  .  .  .  organizations, 
instituted  for  the  purpose  of  mutual  help,  and  not  having  capital  stock  or 
conducted  for  profit,  or  to  restrain  individual  members  of  such  organiza- 
tions from  lawfully  carrying  out  the  legitimate  objects  thereof;  nor  shall 
such  organizations  or  the  members  thereof  be  held  or  construed  to  be 
illegal  combinations  or  conspiracies  in  restraint  of  trade  under  the  anti- 
trust laws." 

An  extension  of  this  privilege  to  the  cooperative  capital 
stock  association  was  intended  by  the  Capper-Hersman  Bill, 
introduced  in  1920  during  the  Sixty-sixth  Congress.     The 


^*J.  M.  Mehl  and  O.  B.  Jesness,  Opus  cit.  p.  4;  Cf.  O.  B.  Jesness  and 
W.  H.  Kerr,  Opus  cit.  p.  78. 


42  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

bill  provided  that  such  organizations  and  their  members 
would  be  exempt  from  the  operation  of  the  United  States 
anti-trust  laws,  provided  that  no  member  of  such  associa- 
tions be  allowed  more  than  one  vote  regardless  of  the 
amount  of  stock  he  might  own,  and  provided  furthermore 
that  the  associations  do  not  pay  dividends  on  stock  in  excess 
of  8  per  cent  per  annum.  The  bill  was  passed  in  the  Lower 
House  on  May  31,  1920,^^  and  in  the  Senate  on  December 
15,  1920,^^  and  the  bill  thereupon  went  back  into  conference, 
but  because  of  differences  among  the  conferees  it  failed  to 
pass.  It  was  reintroduced  with  slight  modifications  by 
Representative  Volstead  in  the  Lower  House  and  by  Sena- 
tor Capper  in  the  Senate,  and  was  passed  in  both  houses 
by  a  large  majority.  It  received  the  President's  signature 
during  the  early  part  of  February,  1922. 

Another  privilege  enjoyed  by  the  cooperative  non-stock 
associations  in  Federal  law  relates  to  the  income  tax.  Ac- 
cording to  the  Revenue  Act  of  1917,  elevator  companies 
organized  as  cooperative  non-stock  associations  could  claim 
exemption  from  payment  of  the  Federal  income  tax  under 
the  following  clause,  which  specifically  exempts — 

^'Farmers'  fruit  growers'  or  like  associations,  organized  and  operated  as 
sales  agents  for  the  purpose  of  marketing  the  products  of  members  and 
turning  back  to  them  the  proceeds,  less  necessary  selling  expenses,  on  the 
basis  of  the  quantity  of  produce  furnished  by  them." 

Under  a  strict  interpretation  of  this  clause,  the  elevator 
companies  organized  as  cooperative  stock  associations 
could  not  claim  exemption  under  this  clause  because  they 
have  a  capital  stock,  and  furthermore  do  not  turn  back  all 
the  proceeds  of  sales  to  their  members  on  the  basis  of  the 
quantity  of  produce  furnished  by  them.  Part  of  the  earn- 
ings are  returned  to  the  members  on  the  basis  of  invested 
capital  stock;  that  is,  all  the  invested  capital  stock  receives 
a  fixed  rate  of  dividend.  However,  under  the  Revenue  Act 
of  1918,  companies  organized  as  cooperative  stock  associa- 
tions received  their  desired  status.  The  wording  of  the 
exemption  was  not  changed,  but  according  to  Regulations 


^«  Cong.  Rec.  Vol.  59,  No.  149,  Sixty-sixth  Cong.  2d  sess.  p.  8606. 
1^  Cong.  Rec.  Vol.  60,  No.  9,  Sixty-sixth  Cong.  3d  sess.,  p.  381. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       43 

^5/^  "A  corporation  organized  to  act  as  a  sales  agent  for 
farmers  and  having  a  capital  stock  on  which  it  pays  a  iixed 
dividend  amounting  to  the  legal  rate  of  interest,  all  of  the 
capital  stock  being  owned  by  such  owners,  will  not  for  that 
reason  be  denied  exemption."  ^^ 

Most  of  the  cooperative  elevator  companies  handle  a 
variety  of  commodities  besides  grain,  and  thus  they  act 
also  as  purchasing  agents  for  their  members.  The  follow- 
ing regulation  applies  to  them  in  this  regard : 

"Cooperative  associations  acting  as  purchasing  agents  are  not  expressly 
exempt  from  tax  and  must  make  returns  of  income,  but  rebates  made  to 
purchasers,  whether  or  not  members  of  the  association,  in  proportion  to 
their  purchases  may  be  excluded  from  gross  income  in  computing  the  net 
income  subject  to  tax."  20 

But  "any  profits  made  from  non-members  and  distrib- 
uted to  members  in  the  guise  of  rebates  are,  of  course, 
subject  to  tax.2i 

The  extension  of  this  privilege  to  the  cooperative  stock 
association  and  on  the  other  hand,  the  specific  provision  that 
"if  the  proceeds  of  the  businss  are  distributed  in  any  other 
way  than  on  such  a  proportionate  basis,  the  company  will 
be  subject  to  tax,""  will  have  a  strong  tendency  for  com- 
panies to  organize  as  cooperative  associations.  This  privi- 
lege no  doubt  accounts  to  a  large  extent  for  the  recent  in- 
crease in  this  type  of  company. 

The  present  trend  of  the  movement  is  such  as  to  indi- 
cate clearly  that  the  relative  increase  in  the  number  of 
companies  organized  as  cooperative  stock  associations  will 
continue  to  be  far  more  rapid  than  the  increase  of  those 
which  embody  only  one  or  the  other  truly  cooperative  char- 
acteristic, such  as  the  equality  of  voting  power  and  the 
limitation  of  stock  ownership.  The  increasing  number 
of  companies  which  have  organized  on  the  former  plan 
within   recent   years   points   to  the   fact   that  the   grain 


1^  The  full  title  is,  Regulations  45  Relating  to  the  Income  Tax  and  War 
Profits  and  Excess  Profits  Tax  under  the  Revenue  Act  of  1918. 
^^Opus  cit.  p.  159  (1920  edit). 

20  Ibidem. 

21  Loc.  cit.  p.  160. 

22  Loc.  cit.  p.  159. 


44  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

growers  are  looking  upon  that  plan  as  the  best  designed 
to  accomplish  the  purpose  a  cooperative  elevator  company 
should  serve,  namely,  that  of  an  advantageous  marketing 
agency  for  the  community.  The  ability  to  incorporate 
under  the  state  laws  specifically  enacted  for  this  type  of 
organization,  the  privileges  granted  to  it  in  Federal  law, 
the  disadvantages  and  inconveniences  attaching  to  the  other 
types  of  organization,  are  all  factors  which  will  tend  to 
make  the  cooperative  stock  corporation  the  predominating 
type  according  to  which  the  cooperative  elevator  compan- 
ies will  organize  in  the  future.  Those  entrusted  with  the 
general  direction  of  the  cooperative  elevator  movement, 
also  favor  the  cooperative  stock  corporation,  and  their 
influence  will  be  an  important  factor  in  its  universal  adop- 
tion." Thus,  the  secretaries  of  the  Farmers'  State  Grain 
Dealers'  Associations,  especially  of  those  which  employ 
secretaries  that  are  to  devote  their  full  time  to  the  asso- 
ciation, are  in  a  position  to  help  those  wishing  to  organize 
a  company.  Similarly,  the  American  Cooperative  Journal, 
the  official  organ  of  the  movement,  and  also  the  Journals 
of  such  rural  organizations,  as  the  Farmers'  Union,  the  So- 
ciety of  Equity,  and  the  Equity  Union,  will  exert  an  impor- 
tant influence  in  the  same  direction. 

While  there  are  undoubtedly  few  companies  that  will 
organize  on  any  other  basis  except  on  that  just  described, 
there  are,  however,  several  obstacles  which  are  preventing 
some  of  the  present  non-cooperative  companies  from  re- 
organizing on  a  strictly  cooperative  basis.  These  obstacles 
arise  chiefly  from  the  circumstances  under  which  these 
companies  were  formed.  Some  of  them  date  back  to  a 
time  when  those  who  invested  their  money  in  an  elevator 
company,  did  so  with  a  large  amount  of  risk.  They  are 
naturally  inclined  to  the  view  that  they  ought  to  receive 
profits  in  accordance  with  the  amount  of  their  investment. 
Some  of  the  companies  were  organized  with  the  financial 


23  As  a  summary  proof  that  the  leaders  in  the  movement  favor  the  co- 
operative stock  corporation,  we  refer  to  the  set  of  by-laws  which  the  U.  S. 
Department  of  Agriculture  drafted  in  conjunction  with  the  Secretaries  of 
the  Farmers'  State  Grain  Dealers'  Associations,  and  which  demands  the  co- 
operative capital  stock  plan. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       45 

aid  of  local  business  men,  such  as  bankers  and  merchants. 
They  naturally  oppose  the  plan  of  profits  being  distributed 
according  to  the  amount  of  business  transacted  with  the 
company  since  they  have  no  business  to  transact  with  it  in 
the  nature  of  marketing  grain.  Some  of  the  farmers  are 
opposed  to  the  plan  likewise  because  the  have  large 
amounts  of  capital  invested  in  the  enterprise,  and  will, 
therefore,  receive  larger  profits  if  these  be  distributed  in 
the  form  of  dividends  on  stock.  Especially  are  they  in- 
clined to  think  in  this  way  if  they  invested  their  money 
in  the  enterprise  at  a  time  when  they  did  so  with  a  large 
amount  of  risk  and  when  others  refused  to  invest  precisely 
because  of  the  attending  financial  hazards.  Thus,  it  is 
sometimes  impossible  or  at  least  difficult  to  reorganize 
a  company  on  the  cooperative  plan  because  of  a  few  dis- 
senting stockholders.  But  as  Mehl  and  Jesness  in  their 
Bulletin  remark:  **No  serious  difficulties  are  usually  en- 
countered, since  most  of  the  stockholders  who  are  inclined 
to  dissent  realize  that  they  cannot  control  against  a  major- 
ity of  the  members  and  that  they  will  fare  better  to  accept 
the  terms  offered  than  to  have  a  new  company  organized, 
the  old  organization  abandoned,  and  its  property  brought 
to  a  forced  sale  in  dissolution  proceedings."  ^^ 

A  factor  recently  entering  the  cooperative  elevator  move- 
ment, which  will  tend  to  exercise  a  strong  influence  for 
companies  to  reorganize  on  a  truly  cooperative  basis  and 
for  new  companies  to  adopt  this  method,  is  the  U.  S.  Grain 
Growers,  Inc.  The  local  elevator  companies  are  intended 
to  become  fundamental  and  affiliated  units,  and  one  of 
the  requirements  that  they  must  meet  in  affiliation,  is  that 
they  be  organized  on  the  truly  cooperative  basis. 

It  may  be  seen,  therefore,  from  the  foregoing  discussion, 
that  there  are  very  few  companies  organized  as  non-stock 
cooperative  associations  or  as  joint  stock  companies;  that 
almost  all  of  them  embody  at  least  one  or  the  other  truly 
cooperative  feature;  and  that  the  present  tendency  for  all 
companies  to  organize  as  true  cooperative  associations  is 


24  opus  cit.  p.  25.    For  methods  of  reorganization,  see  same  Bulletin,  pp. 
24-26. 


46       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

SO  pronounced  as  within  a  few  years  to  make  the  number 
of  companies  organized  on  any  other  basis,  relatively  in- 
significant. 

One  of  the  first  steps  in  organizing  a  cooperative  com- 
pany ^^  is  its  incorporation  under  the  laws  of  the  State  in 
which  it  is  formed.  Incorporation  secures  for  the  com- 
pany a  distinct  legal  status  in  all  its  transactions  and  re- 
lations.2® 

A  set  of  by-laws  is  always  drawn  up,  which  outline  the 
working  plan  of  the  company.  They  generally  deal  with 
the  following  items:  name;  object;  membership;  directors 
and  officers;  their  rights  and  duties;  rights  and  duties  of 
the  manager;  amount  of  stock  that  can  be  held  by  each 
member  and  rules  governing  its  transfer;  indebtedness 
and  liabihties;  distribution  of  earnings;  quorum  and 
amendments.  Care  must  alwas  be  taken  that  the  by-laws 
be  not  in  conflict  with  the  provisions  of  the  incorporation 
law  of  the  state  in  which  the  company  is  formed.^^ 

In  former  days  the  "penalty  clause"  was  an  important 
feature  of  the  by-laws.  While  perhaps  many  companies 
still  have  it  in  their  by-laws,  they  rarely  if  ever  attempt 
to  enforce  it.  As  early  as  1913,  the  clause  had  become 
of  relatively  little  importance  in  many  places.  Professor 
Weld  found  that  in  that  year  in  Minnesota,  out  of  166 
companies  only  thirty-two,  or  19.3  per  cent,  had  a  penalty 
clause  in  their  by-laws  and  only  two  had  used  it.^^  At  the 
present  time  the  clause  is  no  longer  enforced.  Not  only 
is  the  clause  doubtful  legally,^^  but  its  usefulness  as  a  means 
of  insuring  the  support  of  the  members  to  the  organiza- 
tion is  seriously  questioned.    As  a  coercive  measure  it  has 


25  For  a  fairly  detailed  description  of  the  method  to  be  followed  and  the 
precautions  to  be  taken  in  organizing  a  company,  the  reader  is  referred  to 
J,  M.  Mehl  and  O.  B.  Jesness,  Opus  cit.  pp.  1-22. 

26  See  Form  of  Incorporation  at  the  end  of  the  treatise,  Appendix  A. 

27  See  form  of  by-laws  at  end  of  treatise.  Appendix  B.  The  reader  is 
also  referred  to  the  work  of  Mehl  and  Jesness  quoted  above,  which  contains 
a  set  of  by-laws  prepared  by  the  Bureau  of  Markets  of  the  U.  S.  Depart- 
ment of  Agriculture  in  conjunction  with  the  Secretaries  of  the  Farmers' 
State  Grain  Dealers'  Associations. 

28  Opus  cit.  p.  8. 

"  See  preceding  Chapter,  p.  32. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       47 

frequently  only  tended  to  antagonize  the  members.^^  Those 
entrusted  with  the  organizing  of  new  companies  urge  the 
adoption  of  the  cooperative  plan  as  the  most  effective  sub- 
stitute to  guarantee  the  loyalty  of  the  members.^^ 

There  is  a  great  variation  in  the  number  of  members 
comprising  a  company.  While  the  average  number  is 
about  110,^^  there  are  many  companies  in  which  the  mem- 
bership is  considerably  higher  and  others  in  which  it  is 
very  much  lower.  Some  companies  have  a  membership  as 
high  as  400  and  others  not  as  high  as  15.^^  While  the  mem- 
bership is  as  a  rule  for  the  greater  part  composed  of  farm- 
ers, not  infrequently  local  merchants  or  business  men 
own  a  few  shares  of  stock.  Provision  is  generally  made 
in  the  by-laws  whereby  undesirable  persons  may  be  ex- 
cluded. This  provision  is  so  framed  as  to  allow  only  those 
to  become  members  who  have  been  recommended  by  the 
board  of  directors  or  who  have  received  the  approval  of 
the  majority  of  the  stockholders.^^ 

The  general  conduct  of  the  business  is  vested  in  a  board 
of  directors,  usually  seven  in  number.  The  officers  of 
the  board  are  a  president,  vice-president,  secretary,  and 
treasurer.^^  The  members  of  the  first  board  of  directors 
hold  office  for  one  year,  that  is,  until  the  first  annual  meet- 
ing. The  members  to  succeed  them  are  generally  elected 
for  a  term  of  office  as  follows  :^^  three  are  elected  for  a  term 
of  one  year;  two  for  a  term  of  two  years;  and  two  for  a 


30  Mehl  and  Jesness,  Opus  cit.  p.  29. 

31  Cf.  American  Cooperative  Journal,  Vol.   12,  p.  450    (Feb.,   1917). 

32  See  preceding  Chapter,  p.  36. 

33  Professor  Weld  in  his  survey  referred  to  above,  found  that  one  com- 
pany had  600  members,  one  500,  and  two  400.  The  number  of  persons 
comprising  a  company  may  be  still  higher  since  both  the  State  laws  author- 
izing corporations  or  also  cooperative  associations,  set  no  maximum  as  to 
the  number  of  persons  that  may  form  an  association.  The  number  may 
also  be  smaller  than  fifteen,  since  in  most  states,  the  laws  authorizing  co- 
operative associations,  fix  the  minimum  at  five.  The  cooperative  incorpora- 
tion laws  of  Nebraska  and  Indiana  place  the  minimum  at  25,  while  the  one 
of  Kansas  places  it  at  20.  These  States  are  the  only  ones  that  require 
more  than  10. 

3*  See  Appendix  B  at  end  of  treatise.  Art.  IV,  Sec.  3. 

35  Sometimes  the  ©ffice  of  secretary  and  treasurer  is  held  by  the  same 
person. 

36  That  is,  when  the  number  of  directors  is  to  be  seven. 


48  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

term  of  three  years.  Upon  the  expiration  of  the  terms  of 
the  directors  so  elected,  their  successors  are  elected  for 
a  term  generally  of  three  years,  but  sometimes  also  for 
only  one  year.  The  most  important  single  duty  of  the 
board  of  directors  is  to  choose  the  manager  of  the  com- 
pany, for  upon  this  choice  in  a  large  measure  will  depend 
the  success  of  the  company. 

The  amount  of  grain  handled  annually  by  an  individual 
company  varies  greatly,  depending  upon  a  number  of 
factors,  such  as  the  amount  of  grain  grown  in  the  particu- 
lar locality,  the  amount  of  grain  used  for  feeding,  the 
facilities  of  transportation,  the  number  of  competitors,  and 
the  number  of  members  comprising  the  company.  Accord- 
ing to  the  average  arrived  at  by  the  Federal  Trade  Com- 
mission, an  average  based  upon  the  annual  purchases  dur- 
ing the  crop  years,  1912-13  to  1916-17,  the  individual 
cooperative  companies  each  handled  152,792  bushels  an- 
nually. Of  this  amount,  49,543  bushels  represented  wheat; 
39,754  corn;  48,279  oats;  2,311  rye;  and  12,905  barley.^^ 
This  average  represented  almost  twice  the  volume  of  grain 
handled  by  the  average  elevator  of  a  commercial  line  ele- 
vator company,  and  about  one-third  more  than  that  handled 
by  a  local  or  independent  dealer.  During  that  same  period, 
the  individual  elevators  of  the  "cooperative  line  elevator 
companies,"  handled  on  the  average  a  volume  of  136,000 
bushels  annually.^® 

Besides  the  purchase,  storage,  sale  and  shipping  of  grain, 
a  considerable  number  of  the  companies  engage  in  what 
may  be  classed  as  secondary  or  incidental  functions.  The 
first  of  these  to  be  mentioned,  is  the  elevating  and  loading 
of  grain  for  those  who  do  not  market  their  grain  with  the 
company,  but  ship  it  directly  to  the  terminal  market.  Many 
grain  growers,  especially  of  the  Northwest,  prefer  to  ship 
their  grain  directly,  either  on  account  of  dissatisfaction 
with  the  price,  weight,  or  dockage,  offered  at  the  country 
elevator,  or  because  they  have  such  a  large  amount  of  one 
kind  of  grain  as  to  make  direct  shipping  profitable.    Some 


3"  Opus.  cit.  Vol.  I,  p.  117. 
38  Loc.  cit.  p.  117. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       49 

of  those  shipping  their  grain  directly  to  the  terminal  mar- 
kets, load  it  themselves  into  the  car,  but  the  majority- 
have  it  loaded  from  the  country  elevator.  When  this  is 
done,  the  grain  is  unloaded  from  the  vi^agon,  is  weighed, 
and  elevated  into  a  bin,  and  there  stored  until  the  farmer 
has  hauled  all  his  grain  or  until  the  grain  has  accumu- 
lated to  an  amount  equal  to  the  capacity  of  a  car;  then  it 
is  loaded  into  the  car.  About  one-third  of  the  companies 
engage  in  elevating  and  loading  grain  for  direct  shippers. 
The  company  of  course  makes  a  charge  for  performing  this 
service,  and  this  charge  varies  from  one  to  two  cents  per 
bushel  f^  but  in  places  where  competition  is  keen,  the  serv- 
ice is  sometimes  performed  free  of  charge. 

The  vast  majority  of  the  companies  handle  a  variety 
of  side-lines  such  as,  coal,  feeds,  flour,  building  material, 
seeds,  salt,  cement,  and  various  other  farm  supplies.*^  The 
shipping  of  live-stock  has  also  been  engaged  in  by  many 
companies,  especially  by  those  of  Nebraska  and  lowa,*^  al- 
though the  present  tendency  is  to  form  distinct  associations 
for  this  purpose. 

Because  of  the  large  amounts  of  grain  and  side-lines 
handled,  the  financing  of  a  cooperative  elevator  company 
constitutes  one  of  its  most  important  business  features. 
Since  the  prevailing  practice  is  to  pay  cash  for  all  grain  de- 
livered, and  since  most  of  the  local  marketing  of  grain  is 
done  during  a  comparatively  brief  period  of  the  year,*^ 
there  is  an  inevitable  lack  of  funds  to  carry  on  the  business 
without  the  aid  of  outside  loans.  In  1914  the  cooperative 
companies  of  the  North  Central  States,  according  to  esti- 
mates of  the  Office  of  Markets  and  Rural  Organizations,*^ 
borrowed  approximately  $27,000,000,  an  average  of  more 
than  $18,000  per  company.    Taking  these  figures  as  a  basis. 


39  Loc.  cit,  pp.  151-57. 

*°  Out  of  the  total  number  of  cooperative  companies  reporting  to  the 
Federal  Trade  Commission,  82  per  cent  handled  coal ;  55  per  cent,  feeds ; 
41  per  cent,  flour ;  17  per  cent,  building  material ;  and  14  per  cent,  seeds. 
Opus  cit.  p.  173. 

*^  Jesness  and  Kerr,  Opus  cit.  p.  28. 

'»2  See  for  instance  Yearbook  of  U.  S.  Dept.  Agric,  1919,  pp.  516. 
525,  537. 

*3  Jesness  and  Kerr,  Opus  cit.  p.  51. 


50  THE  COOPERATIVE   ELEVATOR   MOVEMENT 

the  4,442  companies  of  the  North  Central  States  in  market- 
inging  the  1919-20  crop,  borrowed  a  sum  of  approximately 
$80,000,000.**  This  represents  a  conservative  estimate  in 
view  of  the  fact  that  the  prices  prevailing  for  grain  and 
farm  supplies  during  1920  were  considerably  higher  than 
during  1914. 

The  three  main  sources  from  which  loans  may  be  se- 
cured are,  commission  firms,  local  banks,  and  individual 
members  of  the  company.  Security  for  these  loans  is  based 
upon  agreements  to  ship  certain  amounts  of  grain  to  the 
loaning  commission  firm,  upon  mortgages  on  the  elevator 
and  equipment,  endorsed  company  notes,  warehouse  re- 
ceipts of  grain  in  storage,  and  upon  personal  security 
noteB  of  individual  members  of  the  company.*^ 

The  manner  of  distributing  profits  or  earnings  in  a  co- 
operative elevator  company  depends  upon  its  plan  of  or- 
ganization. Attention  should  be  called  to  a  difference  of 
opinion  that  exists  among  some  grain  growers  as  to  what 
should  constitute  the  proper  basis  for  the  distribution  of 
the  patronage  dividend.  It  has  been  held  by  some  that  the 
proper  basis  is  the  value  of  the  grain  purchased  and  not 
the  number  of  bushels  contributed.*^  As  a  consequence 
many  companies  have  adopted  this  method  of  distributing 
profits.*^ 

Many  companies  have  adopted  also  the  practice  of  dis- 
tributing profits  to  non-members  doing  business  with  these 
companies.  Usually  this  provision  grants  to  non-members 
only  one-half  the  amount  received  by  members  per  unit 
of  business,  and  no  payment  is  made  until  the  amount  has 


**  This  sum  for  the  greater  part  represents  loans  extending  over  only  a 
few  months. 

*5  Loc.  cit.  pp.  27-28 ;  Bassett,  Moomaw,  and  Kerr,  Cooperative  Marketing 
and  Financing  of  Marketing  Associations,  pp.  201-211;  Report  of  the  Fed- 
eral Trade  Commission,  Opus  cit.  pp.  232-242.  Some  companies  in  order  to 
increase  their  credit  use  a  form  of  bond  which  states  the  undersigned  will 
become  responsible  for  any  loans  made  by  the  corporation  to  the  amount 
set  opposite  to  their  names  or  to  an  amount  equal  to  their  present  share 
capital.  In  this  way  the  credit  of  a  company  can  be  doubled  without  in- 
creasing the  capital. 

*6  J.  R.  Humphrey  and  W.  H,  Kerr,  Patronage  Dividends  in  Cooperative 
Grain  Companies,  p.  6,  Bulletin  371,  1916,  U.  S.  Dept.  of  Agric. 

*^  Report  of  the  Federal  Trade  Commission,  Loc.  cit.  31 ;  See  also  Chap- 
ter VI,  p.   124  of  this  treatise. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       51 

accumulated  to  the  full  value  of  a  share  of  stock,  which 
is  then  issued  to  the  non-member,  and  confers  upon  him 
all  the  rights  of  a  stockholder.  While  this  practice  is  be- 
coming more  common  and  no  doubt  offers  an  effective 
method  of  securing  new  members,  still  there  are  many  who 
advocate  the  retention  of  profits  accruing  from  the  business 
of  non-members.  Thus,  Mr.  E.  G.  McCullom,  the  secretary 
of  the  Indiana  Farmers  Grain  Dealers  Association,  in  ex- 
plaining what  he  considers  the  best  plan  for  the  distribu- 
tion of  profits  for  the  elevator  companies  of  that  State, 
says:*^ 

"1.  Pay  capital  the  legal  rate  of  interest. 

"2.  Pro-rate  the  profits  on  grain  to  grain.  Pro-rate  the  profits 
on  supplies  to  supplies. 

"3.  Keep  the  profits  on  non-members'  business  in  the  treasury  for 
a  rainy  day,  for  one  or  two  of  those  lean  years  which  usually  come." 

Many  companies  make  provision  for  the  creation  of  a 
surplus  fund.  Ten  per  cent  of  the  annual  net  earnings  are 
sometimes  set  aside  until  a  sum  is  reached  equalling  at 
least  30  per  cent  of  the  paid-in  capital.  This  is  required 
by  the  cooperative  incorporation  laws  of  some  states,  for 
instance,  by  those  of  Wisconsin,  Minnesota  and  Iowa. 
Similarly,  a  fund  representing  5  per  cent  of  the  annual 
net  earnings  is  set  aside  by  some  companies  for  educational 
purposes  and  for  promoting  cooperation.  The  setting  aside 
of  a  fixed  percentage  of  the  net  earnings  until  a  specified 
sum  is  reached,  is  a  great  aid  in  properly  financing  the  com- 
pany. It  not  infrequently  happens  that  a  company  cannot 
offer  acceptable  security  for  loans  except  through  the  per- 
sonal notes  of  some  of  the  individual  members,  usually  of 
the  directors.  This  is  placing  a  burden  upon  a  few  mem- 
bers which  should  be  borne  by  all. 

The  foregoing  explains  in  brief  outline  the  structure 
and  functions  of  the  local  grain  elevator  companies,  when 
organized  as  complete,  independent  business  units.  It  re- 
mains to  study  the  variations  of  the  existing  companies  not 
thus  organized. 


*^  Directory  of  the  Farmers  Grain  Dealers  Association  of  Indiana,  1920, 
p.  44. 


52  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

Several  companies,  though  their  number  is  compara- 
tively small,  operate  on  what  is  known  as  the  County  Unit 
Plan.  According  to  the  County  Unit  Plan,  all  the  coopera- 
tive enterprises  of  the  county  in  question,  or  as  many 
as  are  willing  to  take  this  step,  affiliate  themselves  with  a 
centralized  association  and  conduct  their  business  as  a  unit. 
Cooperative  stores,  creameries,  and  other  cooperative  asso- 
ciations— all  may  become  members  of  the  centralized 
county  organization.  This  plan,  which  has  been  specially 
fostered  by  the  Farmers  Union,^^  is  most  extensively  de- 
veloped in  Kansas,  where  also  a  considerable  number  of 
cooperative  elevator  companies  have  thus  affiliated  them- 
selves.. 

When  the  County  Unit  Plan  is  adopted  by  cooperative 
elevator  companies,  the  functions  of  selling  the  grain  and 
buying  the  supplies  for  them,  is  performed  by  the  general 
manager  of  the  county  organization.  Each  day  he  receives 
information  as  to  the  amount  of  business  each  member 
has  transacted  with  the  local  company.  This  information  is 
so  filed  as  to  enable  the  central  office  to  compute  at  any 
time  the  financial  status  of  each  affiliated  association  and 
of  each  member.^^ 

It  is  customary  for  the  central  office  to  keep  separate 
the  accounts  for  each  company.  This  is  done  because  a 
considerable  difference  of  opinion  exists  in  regard  to  what 
should  constitute  the  proper  basis  for  the  division  of  profits. 
In  as  far  as  some  companies  operate  at  relatively  lower 
costs  than  others,  it  is  seen  that  the  former  can  pay  higher 
dividend  rates  than  the  latter.  In  virtue  of  this  fact,  the 
companies  with  relatively  lower  costs,  have  favored  the 
view  that  profits  should  be  distributed  in  proportion  to  the 
profit  that  has  been  realized  by  each  affiliated  association 


49  See  Chapter  IV,  pp.  78-80. 

^<>  J.  R.  Humphrey  and  W.  H.  Kerr,  Opus  cit.  p.  3.  The  principle  of  the 
County  Unit  Plan  is  exemplified  whenever  two  or  more  companies  conduct 
their  business  as  a  unit  through  a  centralized  organization,  distinct  from 
themselves.  When  one  manager  handles  the  business  of  two  or  more  ele- 
vators, owned  and  operated  by  the  same  local  company,  as  is  sometimes 
the  case,  or  even  when  a  manager  is  appointed  for  each  elevator  owned  and 
operated  at  neighboring  places  by  one  company,  there  is  no  principle  of 
organization  involved  different  from  that  described  in  the  pages  immediately 
preceding. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       53 

and  should  not  be  equalized  according  to  the  transactions  of 
the  association  as  a  county  unit." 

A  form  of  organization,  more  elaborate  and  complex 
than  the  County  Unit  Plan,  is  represented  by  those  local 
companies  that  are  members  of  a  centralized  association 
which  engages  in  terminal  grain  marketing  functions,  such 
as  the  buying  and  selling  of  grain  on  the  exchanges  or 
boards  of  trade  and  the  operating  of  terminal  elevators. 
Under  this  system,  the  unit  of  membership  in  the  central- 
ized association  is  the  local  company,  which  is  a  stock- 
holder therein,  which  is  expected  to  consign  its  grain  to 
it,  and  which  receives  profits  from  the  centralized  asso- 
ciation in  proportion  to  the  amount  of  business  it  has  con- 
tributed to  it.  Until  the  present,  however,  the  terminal  co- 
operative marketing  associations,  operating  on  the  boards 
of  trade  have  not  been  able  to  pro-rate  profits  to  their  mem- 
bers in  the  form  of  a  patronage  dividend  because  this  prac- 
tice is  considered  by  the  grain  exchanges  the  granting  of  a 
rebate,  which  is  forbidden  according  to  their  rules.  In  this 
connection  it  may,  however,  be  of  interest  to  remark  that 
the  Federal  Future  Trading  Act,  recently  passed,  forbids 
a  grain  exchange  or  a  board  of  trade  to  be  classified  as 
a  "contract  market"  unless  its  governing  board  admits  to 
membership  and  all  privileges,  "any  duly  authorized  repre- 
sentative of  any  lawfully  formed  and  conducted  cooperative 
association  of  producers  having  adequate  financial  respon- 
sibility." The  Act  furthermore  specifically  states  "that  no 
rule  of  a  contract  market  against  rebating  commissions, 
shall  apply  to  the  distribution  of  earnings  among  the  bona 
fide  members  of  any  such  cooperative  association."  ^^ 

In  the  North  Central  States,  the  number  of  companies 
that  are  at  the  present  time  thus  affiliated  to  a  terminal 
marketing  association,  is  comparatively  very  small.  The 
companies  that  are  stockholders  in  the  Equity  Cooperative 


5^  Opus  cit.  p.  7.  A  discussion  of  the  advantages  and  disadvantages  of  the 
County  Unit  Plan  is  deferred  to  the  Chapter  on  the  Factors  of  Success  in 
Cooperative  Grain  Marketing. 

"  H.  R.  5676,  Sec.  5,  c,  67th  Cong.  3d  sess. 


54  THE   COOPERATIVE   ELEVATOR    MOVEMENT 

Exchange  ^^  of  St.  Paul,  Minn.,  are  probably  the  most 
conspicuous  example  of  this  development  in  the  cooperative 
elevator  movement.  There  are,  however,  several  organiza- 
tions in  the  process  of  formation  at  the  present  time  which 
contemplate  engaging  in  terminal  marketing  operations, 
and  of  which  local  companies  will  be  stockholders  and 
directors.^* 

These  organizations  are  the  result  of  a  growing  con- 
viction among  the  grain  growers  that  they  should  not 
confine  their  efforts  locally  to  the  problem  of  grain  mar- 
keting, but  should  extend  them  to  the  functions  surround- 
ing the  marketing  of  grain  in  the  terminal  markets.  The 
newest  development  in  this  direction  is  the  U.  S.  Grain 
Growers,  Inc.  This  organization  represents  substantially 
the  ideas  of  the  "Commtitee  of  Seventeen,"  which  upon 
a  call  issued  by  the  American  Farm  Bureau  Federation,^^ 
convened  at  Chicago  on  July  23  and  24,  1920,  for  the  pur- 
pose of  discussing  plans  through  the  adoption  of  which  the 
marketing  and  distribution  of  grain  might  be  improved. 
After  an  interval  of  six  months  devoted  to  a  study  of  the 
question,  the  committee  met  in  conference  at  Kansas  City 
on  February  17,  1921,  where  they  adopted  what  has  popu- 
larly come  to  be  called,  "The  Plan  of  the  Committee  of 
Seventeen."  ^^  This  plan  was  submitted  to  the  grain  grow- 
ers of  the  various  states.  Meetings  were  held  in  various 
sections  for  the  purpose  of  discussing  the  plan  and  select- 


^^  The  Equity  Exchange  was  organized  in  1908  under  the  auspices  of  the 
American  Society  of  Equity,  and  was  incorporated  in  1911  under  the  laws 
of  North  Dakota.  The  Exchange  controls  about  100  country  elevators,  but 
they  are  for  the  greater  part  owned  and  operated  by  the  Exchange  as  a 
corporation,  and  not  by  growers  organized  into  local  companies.  Only  a 
few  local  companies  own  stock  in  the  Exchange.  Being  denied  representa- 
tion on  the  Minneapolis  Grain  Exchange  as  long  as  it  would  insist  on  pro- 
rating profits  to  its  members  on  the  basis  of  patronage,  the  Exchange  estab- 
lished a  market  place  in  St.  Paul.  See  J.  M.  Mehl,  Cooperative  Grain 
Marketing,  pp.  17-18,  Bulletin  947,  U.  S.  Dept.  of  Agric. ;  J.  E.  Anderson, 
The  Equity  Cooperative  Exchange,  a  paper  contributed  to  the  Third  Na- 
tional Conference  of  Markets  and  Farm  Credits,   1915. 

54  Mehl,  Opus  cit.  p.  18. 

5^  The  Plan  was  published  by  the  Committee  in  a  brochure  called.  An 
Outlined  Explanation  of  the  Proposed  Grain  Marketing  Plan  of  the 
Farmers  Grain  Marketing  Committee  of  Seventeen. 

55  A  brief  description  of  this  Federation  will  be  given  in  the  next  Chapter. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCLVTIONS       55 

ing  delegates  for  the  conference  to  be  held  in  Chicago  on 
April  6,  1921.  The  conference  was  convened  on  the  ap- 
pointed date.  On  the  following  day,  the  plan  as  originally 
drafted  by  the  committee  was  ratified  in  its  entirety  except 
for  a  few  minor  changes.  The  immediate  result  of  this 
conference  was  the  organizing  of  the  association,  known 
as  the  U.  S.  Grain  Growers,  Inc.  The  certificate  of  incorpo- 
ration was  soon  issued  and  the  by-laws  adopted,  as  were 
also  the  contracts  whereby  the  mutual  business  relations  of 
the  U.  S.  Grain  Growers,  Inc.,  the  local  cooperative  elevator 
companies  and  the  individual  grain  growers  affiliated  with 
it,  are  to  be  governed.^^ 

The  U.  S.  Grain  Growers,  Inc.,  if  it  grows  to  the  dimen- 
sions as  intended  by  the  plan  of  which  it  is  the  concrete 
embodiment,  will  easily  be  the  largest  cooperative  asso- 
ciation in  the  world,  and  in  the  volume  of  its  transactions 
will  rival  the  largest  corporations  in  this  country  at  the 
present  time.  The  plan  carries  with  it  an  invitation  to 
every  grain  grower  in  the  United  States  to  become  a  mem- 
ber of  the  U.  S.  G.  G.,  which  will  act  as  a  national  sales 
association  for  its  members.  Were  this  plan  universally 
adopted,  it  would  mean  that  the  selling  of  all  the  surplus 
grain  of  this  country,  gigantic  in  volume,  would  be  concen- 
trated in  a  single  organization.  The  plan  is  vast  in  its 
concept,  and,  if  found  successful,  may  greatly  modify  the 
present  method  of  marketing  and  distributing  grain  in 
this  country.  The  U.  S.  G.  G.  is  designed  primarily  as  a 
service  institution  for  the  local  cooperative  elevator  com- 
panies, since  it  is  to  handle  their  grain  in  the  terminal 
markets.  The  local  companies  are  intended  to  become  affili- 
ated associations,  and  thereby  will  become  basic  and  in- 
tegral parts  of  the  U.  S.  G.  G.    In  places  where  there  are 


^"  The  certificate  of  incorporation  as  also  the  chief  provisions  of  the  by- 
laws may  be  found  in  the  issue  of  the  American  Cooperative  Manager,  p. 
5-6,  April  10,  1921  (Vol.  VI,  no.  7).  The  contract  between  the  local  co- 
operative elevator  company  and  the  U.  S.  Grain  Growers,  Inc.,  may  also  be 
found  in  this  issue,  but  this  contract  as  also  that  governing  the  relations 
of  individual  growers  and  the  National  Association  have  been  revised.  The 
description  to  follow  is  based  on  the  contracts  as  revised  on  June  20„  1921, 
and  contained  in  a  brochure  issued  by  the  Department  of  Information  of 
the  U.  S.  Grain  Growers,  Inc. 


56  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

local  affiliated  companies,  individual  grain  growers  can 
take  out  membership  in  the  U.  S.  G.  G.  only  on  condition 
that  they  enter  a  contract  in  virtue  of  which  they  agree 
to  let  the  local  company  handle  all  their  surplus  grain. 
In  places  where  no  local  cooperative  elevator  companies 
have  been  established,  individual  growers  may  contract 
directly  with  the  U.  S.  G.  G.  for  the  handling  of  their  grain, 
but  it  is  the  intention  that  the  growers  of  such  communi- 
ties organize  themselves  into  local  affiliated  companies  at 
the  earliest  opportunity.  On  the  other  hand,  the  local  com- 
panies must  meet  a  series  of  requirements  in  affiliation,  and 
this  will  necessarily  require  several  changes  in  the  struc- 
ture and  functions  of  a  considerable  number  of  them,  pro- 
vided they  wish  to  affiliate  themselves. 

The  U.  S.  G.  G.  in  its  structure  is  a  non-stock,  non-profit 
organization.^^  Control  of  its  operations  and  policies  rests 
in  a  board  of  directors  consisting  of  21  members,  chosen 
in  the  following  manner.  Each  local  community,  organized 
into  an  affiliated  cooperative  elevator  company  or  into  a 
local  grain  growers*  association,  elects  a  delegate  to  an 
annual  convention  which  will  be  composed  of  all  the  affili- 
ated local  companies  and  associations  of  the  respective 
Congressional  District.  This  will  be  called  the  Congres- 
sional District  Convention.  Each  District  will  be  entitled 
to  one  delegate  at  the  annual  convention  of  the  national 
association.  The  election  of  all  delegates  as  also  the  mem- 
bers of  the  board  of  directors  will  be  determined  by  a  ma- 
jority vote.  In  order  that  one  may  be  a  member  of  the 
board  of  directors,  it  is  necessary  that  he  be  also  a  member 
of  the  U.  S.  G.  G.  Anyone  who  holds  an  elective  or  ap- 
pointive political  office,  is  barred  from  membership  on 
the  board,  and  if  at  any  time  during  his  term  he  accepts 
a  political  office,  his  membership  automatically  ceases."* 


'^  The  difference  between  a  non-stock,  non-profit  association  and  one 
organized  with  capital  stock  and  conducted  for  profit  is  illustrated  by  those 
local  elevator  companies  organized  as  cooperative  non-stock  associations, 
and  those  organized  as  ordinary  stock  corporations. 

6»  By-laws,  Art.  II  and  III. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       57 

The  aim  of  the  U.  S.  G.  G.,  as  expressed  in  its  certificate 
of  incorporation,  is : 

"To  improve  the  methods  of  preparing,  storing,  and  handhng  agri- 
cultural products  including  grain  and  products  thereof ;  to  reduce  the 
cost  of  producing  and  marketing  such  products;  to  reduce  speculation, 
manipulation,  and  waste,  and  all  unnecessary  transactions  in  such  market- 
ing ;  to  encourage  scientific  and  advanced  farming  practice ;  to  stimulate 
and  advocate  the  planting  of  the  most  desirable  varieties;  to  increase 
the  consumption,  build  up  new  markets,  and  develop  new  uses  for  such 
products ;  to  facilitate  the  transportation  and  the  collection  of  claims 
regarding  the  transportation  of  such  products;  to  market  same  directly 
and  with  regularity  so  as  to  fupiish  the  same  economically  to  the 
manufacturers  and  users  thereof ;  to  preserve  for  the  growers  and  the 
public  their  proper  profits  and  economies  to  establish  uniform  business 
administration  and  accounting  methods  among  farmers,  warehouses,  ele- 
vators, and  members  of  this  corporation ;  to  do  everything  necessary, 
suitable  and  proper  to  advance  the  interest  and  benefit  of  the  growers 
of  grain  and  those  engaged  in  allied  businesses." 

To  accomplish  its  central  aim,  namely,  the  improvement 
of  grain  marketing  methods,  the  U.  S.  G.  G.  will  act  as 
a  national  sales  association  for  the  grain  contributed  by 
its  members.  In  pursuance  of  this  aim,  the  association 
is  authorized  to  establish  as  it  deems  advisable: 

"(a)  Branch  sales  offices  at  important  grain  markets  to  handle  the 
grain  for  each  natural  grain  district. 

"(b)  Terminal  elevator  service  in  connection  with  sales  offices,  either 
by  contractual  arrangements  for  same,  or  through  the  organization 
of  a  company  or  companies,  which  may  lease,  buy,  or  build  terminal 
elevators. 

"(c)  Facilities  for  financing  the  marketing  of  grain  through  the  organi- 
zation of  a  finance  corporation  whose  capital  stock  shall  be  subscribed 
to  by  members,  so  far  as  possible. 

"(d)  Facilities  for  marketing  the  exportable  surplus  of  grain  and 
related  products. 

"(e)  Service  departments  furnishing  information  covering  local,  na- 
tional, and  worldwide  conditions  affecting  the  grain  trade;  also  informa- 
tion and  service  in  connection  with  transportation,  legal,  statistical,  and 
other  problems."  «o 

In  accordance  with  these  provisions,  a  number  of  sub- 
sidiary corporations  have  already  been  formed ;  others  are 
in  the  process  of  formation,  to  which  still  others  may  be 
added  as  the  need  arises. 


«o  By-laws,  Art.  X,  Sec.  2. 


58       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

Sales  offices  will  be  established  for  zones  forming  natural 
units  on  the  basis  of  commercial  connections  and  trans- 
portation facilities.^^  General  offices  are  contemplated  for 
St.  Paul,  Minneapolis,  Chicago,  Cleveland,  Omaha,  Kansas 
City,  Spokane,  Ft.  Worth,  and  New  York  City.^^  A  tem- 
porary selling  agency  has  been  established  at  St.  Paul,  un- 
der the  direction  of  J.  M.  Anderson,  president  of  the  Equity 
Cooperative  Exchange.^^  According  to  official  information 
of  the  publicity  department  of  the  U.  S.  G.  G.,  two  million 
bushels  of  grain  had  been  handled  on  the  St.  Paul  market 
before  September  25,  1921.^^  No  permanent  selling  agen- 
cies have  thus  far  been  established,  but  according  to  recent 
announcement  such  agencies  will  be  established  immedi- 
ately at  Chicago,  Omaha  and  Minneapolis.^^ 

A  corporation  subsidiary  to  the  U.  S.  G.  G.,  the  fiscal 
agency  known  as  the  Farmers  Finance  Corporation,  was 
launched  during  the  latter  part  of  June,  1921.  Its  capital 
stock  is  $100,000,000,  divided  into  1,000,021  shares,  21  of 
which  are  common  and  1,000,000  preferred.  The  21  shares 
of  common  stock  will  be  without  nominal  value.  Control 
of  the  corporation  will,  however,  rest  in  the  holders  of 
these  shares,  and  they  will  be  held  by  the  board  of  directors 
of  the  U.  S.  G.  G.  The  shares  of  preferred  stock  will  be 
issued  in  denominations  of  $100,  to  be  sold  to  the  members 
of  the  U.  S.  G.  G.  as  far  as  possible.  In  the  event  of  dissolu- 
tion, the  assets  of  the  corporation  will  revert  to  the  holders 
of  the  preferred  stock.®^  The  quick  assets  of  the  corpora- 
tion will  probably  consist  in  notes  secured  by  warehouse 
receipts,  bonds,  and  commercial  paper.®^  The  finance  cor- 
poration will  assist  the  other  subsidiary  agencies  of  the 
U.  S.  G.  G.  by  furnishing  them  with  money  and  credit  in 
their  business  transactions.    Local  affiliated  companies  may 


®i  American  Cooperative  Manager,  April  25,  1921,  p.  5. 

^2  Ibidem. 

63  See  this  Chapter,  p.  58. 

*■*  American  Cooperative  Manager,  Sept.  25,  1921,  p.  19. 

65  American  Cooperative  Journal,  p.  31,  April,  1922. 

66  American  Cooperative  Manager,  June  25,  1921,  p.  40.     The  shares  of 
stock  are  transferable  but  they  must  in  the  first  instance  be  oflfered  to  the 

corporation.    Loc.  cit.  July  25,  1921,  p.  11. 
6T  Loc.  cit.  p.  11. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       59 

borrow  money  from  the  finance  corporation,  provided  they 
furnish  suitable  collateral,  and  provided  no  better  market 
is  open  for  the  invesment  of  its  securities.^^ 

Very  little  progress  has  thus  far  been  made  in  placing 
the  finance  corporation  on  a  solid  basis.  Farmers  have 
not  been  v^illing  to  subscribe  to  its  stock,  a  fact  due  very 
probably  to  the  money  stringency  on  account  of  the  de- 
pressed prices  of  agricultural  products  and  to  the  fact 
that  the  stock  of  the  finance  corporation  is  not  entitled  to  a 
fixed  rate  of  return.  Probably  a  new  method  of  financing 
will  have  to  be  devised.  The  building  up  of  proper  selling 
agencies  and  the  securing  of  adequate  finances  are  the  im- 
mediate problems  that  are  facing  the  officers  of  the  or- 
ganization. Reliance  will,  however,  not  be  placed  alone 
upon  the  finance  corporation  to  furnish  the  finances  of  the 
movement.  Each  member  of  the  U.  S.  G.  G.  must  pay  an 
initiatory  fee  of  ten  dollars,  and  everyone  contributing 
grain  to  the  U.  S.  G.  G.  permits  a  reduction  from  his  pro- 
ceeds to  cover  the  cost  of  handling. 

Besides  the  sales  and  financing  agencies,  there  are  six 
other  service  departments  or  subsidiary  corporations  of 
the  U.  S.  G.  G.  They  are  the  legal,  statistical,  and  pooling 
departments,  and  those  of  transportation,  organization,  and 
information  or  publicity.*^^  In  order  to  avoid  duplication, 
the  service  departments  will  be  correlated  as  far  as  possible 
with  the  already  existing  agencies  with  similar  purposes. 
Several  cooperative  commission  firms  have  been  established 
in  the  terminal  markets  to  serve  some  of  the  cooperative 
companies  at  country  points,  and  it  is  the  intention  of 
the  U.  S.  G.  G.  to  cooperate  with  these  agencies  to  the 
fullest  extent.  Similar  correlation  will  be  sought  with  the 
farmers'  grain  dealers'  associations  and  kindred  organ- 
izations, which  are  now  serving  the  local  companies  in  vari- 
ous ways,  such  as  providing  advantageous  insurance  and 
bonding  rates,  supplying  auditors,  etc. 

Membership  in  the  U.  S.  G.  G.  is  limited  to  the  "pro- 
ducers of  grain  and  related  products,"  who  comply  with 


«8  Loc.  cit.,  June  25,  1921,  p.  49. 
69  Loc.  cit.,  April  25,  1921,  p.  5. 


60  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

its  by-laws  and  regulations,  and  enter  contracts  whereby 
they  agree  that  the  U.  S.  G.  G.  will  handle  exclusively  their 
surplus  ^^^  grain.  Everyone  upon  becoming  a  member  of 
the  U.  S.  G.  G.  must  pay  a  fee  of  ten  dollars,  to  which  he 
relinquishes  all  future  claim,  as  it  is  merely  an  evidence 
of  good  standing  and  creates  no  property  right,  and  will  be 
used  to  provide  a  part  of  the  working  capital.''\ 

The  individual  members  of  the  U.  S.  G.  G.  in  order  to 
make  use  of  its  facilities,  must  also  be  members  of  the 
local  affiliated  elevator  company,  provided  they  reside  in  a 
community  where  such  a  company  has  been  established." 
Local  elevator  companies  must  meet  certain  requirements 
before  they  can  be  affiliated  with  the  national  association. 
They  must  be  organized  under  the  cooperative  incorpora- 
tion law  of  the  state  in  which  they  operate ;  they  must  dis- 
tribute their  net  earnings  on  the  basis  of  patronage;  and 
they  must  enter  a  contract  with  the  national  association.^® 
Local  companies  organized  in  states  which  have  no  coopera- 
tive incorporation  law,  must  be  cooperative  in  the  sense 
that  the  national  association  will   attach  to  the  term.^* 

The  considerable  number  of  companies  that  distribute 
their  profits  after  the  manner  of  ordinary  capital  stock 
corporations  do  not  meet  the  requirements  necessary  for 
affiliation.    Such  companies  may  reorganize  on  a  truly  co- 


"^^  By  this  term  is  meant  all  grain  that  is  not  used  for  feeding,  for  seed, 
or  for  milling  into  flour  for  one's  own  use.  Only  upon  permission  of  the 
local  company  or  grain  growers'  association,  or  upon  permission  of  the 
national  association  in  cases  where  no  such  local  companies  or  associations 
exist,  is  the  producer  allowed  to  dispose  of  his  surplus  grain  in  any  other 
way  than  that  described. 

"  By-laws,  Art.  I. 

'2  In  places  where  there  is  no  affiliated  company  or  grain  growers'  asso- 
ciation, individual  members  may  contract  with  the  U.  S.  G.  G.  for  the  direct 
shipment  of  their  grain. 

^3  U.  S.  Grain  Growers,  Inc.,  a  brochure  issued  by  the  Department  of 
Information,  p.  11. 

^*  The  following  requirements  have  been  set  down  for  such  companies : 
"1.  Each  stockholder  can  have  only  one  vote ;  2.  Each  stockholder  can 
own  only  a  limited  amount  of  stock ;  3.  Dividends  on  stock  must  be  limited 
to  a  reasonable  rate ;  4.  The  earnings,  above  cost  and  surplus  funds,  must  be 
distributed  as  patronage  dividends ;  5.  No  proxy  voting  may  be  allowed  un- 
less required  by  statute;  6.  Ownership  of  stock  must  be  limited  to  grain 
growers;  7.  Stock  must  be  available  for  sale  to  any  grain  grower  in  the 
community  who  wishes  to  become  a  member."    Loc.  cit.  p.  11. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCUTIONS       61 

operative  basis,  or  when  this  is  difficult  or  impossible,  the 
stockholders  or  directors  who  are  members  of  the  U.  ^._ 
G.  G.  may  organize  themselves  into  a  local  grain  growers' 
association,  which  will  thereupon  assume  the  same  func- 
tions as  those  companies  meeting  all  requirements.  In 
the  event  of  stockholders  or  directors  not  taking  such  ac- 
tion, the  national  association  will  make  no  attempt  to  or- 
ganize a  cooperative  elevator  in  that  community  before 
January  1,  1924  J« 

The  business  relations  of  the  individual  members  and 
the  local  affiliated  companies  or  growers'  associations  with 
the  U.  S.  G.  G.,  are  specified  in  two  complementary  agree- 
ments. The  first  of  these  is  known  as  the  Grain  Growers' 
Contract,  whereby  the  individual  member  agrees  that  the 
local  affiliated  company  shall  handle  all  his  surplus  grain; 
the  other  is  called  the  Elevator  Contract,  whereby  the  local 
company  or  association  agrees  that  the  U.  S.  G.  G.  shall 
handle  all  the  grain  contributed  to  the  local  company  by  the 
individual  members.  By  violating  these  provisions  of  the 
contracts,  both  the  individual  growers  and  the  local  com- 
panies agree  to  pay  certain  sums  as  liquidated  damages.^' 
The  first  term  of  these  contracts  is  to  be  for  a  period  of 
five  years,  and  hence  will  extend  to  June  30,  1927.^^  There- 
after the  contracts  are  to  continue  in  effect  from  year  to 
year  until  either  party  terminate  the  same."^^ 

The  method  according  to  which  grain  shall  be  handled 
and  sold  is  determined  by  the  individual  member.  Three 
distinct  methods  of  sale  are  open  to  him.  He  may  sell  it 
at  the  current  market  price  to  the  local  affiliated  company, 
and  receive  also  a  patronage  dividend  if  sufficient  profits 
have  been  realized  from  the  transaction  to  warrant  its 
payment.^^    He  may  also  consign  his  grain  to  the  national 


76  By-laws,  Art.  X,  Sec.  4. 

"^^  See  Grain  Growers'  Contract,  Sec.  13 ;  Elevator  Contract,  Sec.  14. 

77  Grain  Growers'  Contract,  Sec.  4 ;  Elevator  Contract,  Sec.  13. 

78  For  conditions  governing  the  termination  of  the  contracts,  see  Grain 
Growers'  Contract,  Sec.  14,  B-3 ;  Elevator  Contract,  Sec.  13. 

7»  Grain  Growers'  Contract,  Sec.  13,  A-1.  The  contract  does  not 
specifically  state  that  a  patronage  dividend  will  be  allowed  on  such  trans- 
actions, but  it  is  stated  in  the  official  brochure,  The  U.  S.  Grain  Growers, 
Inc.,  p.  24. 


l62  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

association,  the  local  company  acting  as  a  forwarding 
agent.  The  net  proceeds,  less  the  cost  of  handling,  will 
be  returned  to  the  grower.^^  The  elevator  company,  how- 
ever, is  exempt  from  any  losses  or  damages  that  may  occur 
in  the  handling  of  the  grain  except  for  those  of  which  it  is 
the  proximate  cause.  The  third  method  according  to 
which  grain  may  be  handled>  is  that  of  pooling.  This 
method  of  sale  and  handling  involves  the  collection  of  grain 
for  storage,  the  centralization  of  the  selling  responsibility, 
and  the  reception  of  average  prices  for  grain  of  like  kind 
and  quality. 

The  pooling  feature  as  elaborated  by  the  U.  S.  G.  G.  is 
characterized  by  elasticity,  there  being  three  distinct 
methods  of  which  the  members  may  avail  themselves.  Grain 
may  be  pooled  locally.  All  the  members  of  a  local  affiliated 
elevator  company,  or  as  many  as  care  to  take  this  step, 
may  agree  that  all  the  grain  contributed  by  each  shall  be 
commingled  with  grain  of  like  kind  and  quality,  to  be  sold 
during  a  period  agreed  upon,  and  the  payment  received 
to  be  "the  average  price  secured  for  all  grain  of  like  kind 
and  grade  so  commingled  and  sold,  less  deductions  for 
costs  of  handling  *  *  *  and  subject  to  such  equitable  differ- 
entions  as  said  company  may  find  necessary  to  estab- 
lish." «^  The  administration  of  local  pools  will  be  under 
the  jurisdiction  of  a  local  pooling  committee,  consisting  of 
three  members,  chosen  by  those  who  wish  to  avail  them- 
selves of  this  method  of  sale.  This  committee  exercises 
"complete  control  over  the  handling,  shipping,  and  selling 
of  all  pooled  grain,  determining  the  time,  quantity  and  des- 
tination of  sales,  and  effecting  all  necessary  contracts  and 
other  arrangements  for  storage,  etc.,  which  may  be  deemed 
necessary  for  the  efficient  marketing  of  said  grain."  ^^ 

The  members  of  the  U.  S.  G.  G.  may  also  elect  to  have 
their  grain  handled  on  the  basis  of  joint  pooling.    When 


^o  Grain  Growers'  Contract,  Sec.  13,  A-2. 

81  Loc.  cit.,  Sec.  14,  B-1. 

^^  Loc.  cit.,  Sec.  14,  B-1,  c.  The  control  of  the  local  committee  extends 
extends  only  to  the  grain  contributed  to  the  Icoal  pool.  For  a  more  ex- 
plicit statement  of  the  committee's  rights  and  duties,  see  Sec.  14,  B-1,  d-p. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       63 

this  method  of  sale  and  handling  is  adopted,  the  grain 
pooled  locally  is  commingled  with  other  grain  of  like  kind 
and  quality,  belonging  to  one  or  more  of  other  affiliated 
companies.  It  is  within  the  jurisdiction  of  the  local  pooling 
committee  to  decide  whether  the  grain  contributed  to  the 
local  pool,  shall  be  handled  on  a  joint  basis.  The  individual 
grower  has  the  same  right  in  regard  to  his  own  grain. 
The  national  association  exercises  complete  control  over 
the  joint  pool,  returning  of  course  the  net  proceeds  to  the 
members  contributing  to  such  pools.^^ 

A  third  method  of  pooling  is  that  known  as  the  Partial 
Grain  Pool.  Under  this  arrangement  the  grower  elects  to 
pool  one-third  of  his  grain,  the  balance  of  which  may  be 
handled  on  the  basis  of  cash  sale  or  consignment.  The  ad- 
ministration of  the  partial  pool  will  be  under  the  control 
of  the  national  association.** 

In  as  far  as  grain  pooling  involves  the  reception  of 
average  prices  for  grain  of  like  kind  and  grade  it  takes  on 
the  aspect  of  an  insurance  measure.  It  guarantees  the 
producer  against  receiving  the  lowest  market  price  that 
will  prevail  at  any  time  within  the  period  covered  by  the 
pooling  contract,  and,  it  likewise  will  prevent  him  from  re- 
ceiving the  highest  market  price  prevailing  at  any  time 
within  that  same  period.  The  differential  between  the 
average  price  for  the  entire  term  of  the  pooling  contract 
and  the  highest  price  prevailing  at  any  specific  time  during 
that  same  period,  may  be  looked  upon  as  the  highest  pos- 
sible cost  of  carrying  such  insurance.®" 

The  local  affiliated  companies  or  grain  growers'  associa- 
tions assume  several  other  obligations  besides  those  con- 
nected with  the  handling  of  the  grain  of  the  individual 
members.  They  must  obey  the  rules  and  regulations  which 
the  national  association  may  issue  for  standardizing  the 
manner  of  keeping  warehouse  records  and  accounts,  as  also 


8SL0C.  cit.  Sec.  14,  B-2. 

8*  Loc.  cit,  Sec  14,  B-3. 

**^  This  presupposes  of  course  that  grain  can  be  handled  as  economically 
on  a  pooling  basis  as  on  that  of  cash  sale  or  consignment.  The  pooling 
feature  of  the  plan  has  thus  far  met  with  little  favor. 


64       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

those  issued  for  providing  inspectors  and  weighers  to 
standardize  the  methods  of  weighing,  handling,  storing  and 
shipping  of  grain.  They  likewise  agree  to  furnish  the 
national  association  with  statistical  crop  data  of  the  com- 
munity, and  permit  it  to  examine  and  audit  their  accounts, 
records,  and  reports.^*^  In  cases  when  a  lien  exists  upon  the 
grain  covered  by  the  contract,  the  company  must  report 
this  fact  to  the  national  association.  The  association  may 
then  pay  off  the  lien  in  part  or  wholly,  from  the  proceeds  of 
such  grain,  and  deduct  all  expenses  connected  with  it.®^ 
Losses  sustained  by  the  local  companies  or  associations  on 
account  of  their  own  negligence  shall  be  charged  to  them, 
but  they  have  no  financial  liabilities  for  debts  incurred  by 
the  national  association  in  its  own  name.  On  the  other 
hand,  the  national  association  is  exempt  from  liability  to 
the  companies  or  associations  when  it  sustains  losses  not 
due  to  its  own  negligence.®^ 

The  U.  S.  G.  G.  is  a  non-profit  association,  and  hence 
must  perform  its  services  at  cost.  In  other  words,  all  the 
proceeds  realized  on  its  transactions,  must  be  returned  to 
the  members  after  the  cost  of  handling  the  business  has 
been  deducted.  The  same  statement  applies  to  the  local 
affiliated  companies  or  grain  growers'  associations.^^  All 
the  proceeds  accruing  to  the  U.  S.  G.  G.  will  be  blended 
into  a  general  fund.  The  board  of  directors  may  deduct 
from  time  to  time  such  uniform  amounts  or  percentages 
as  shall  be  regarded  necessary  to  meet  the  expenses  of 
handling  grain  committed  to  it  by  its  members,  and  to 
provide  other  funds  necessary  in  carrying  out  the  pur- 
poses of  the  association,  such  as  the  leasing  or  buying  of 
elevator  facilities,  the  creation  of  reserves,  the  control  and 
operation   of   subsidiary   corporations,   etc.®^     As  far   as 


8^  Elevator  Contract,  Sec.  4-5. 

^"^  Loc.  cit.,  Sec.  7.  This  obligation  of  the  local  company  or  association 
is  based  upon  the  previous  obligation  of  the  individual  member  to  give  a 
signed  statement  to  the  company,  showing  what  liens,  if  any,  there  are  upon 
the  grain  he  delivers.  The  company  has  the  right  to  pay  off  these  liens  if  it 
cares  to  meet  the  situation  in  this  manner.    Grain  Growers'  Contract,  Sec.  9. 

88  Loc.  cit.  Sec.  8,  9. 

^^  Grain  Growers'  Contract,  Sec.  17;  Elevator  Contract,  Sec.  12. 

^0  Elevator  Contract,  Sec.  12. 


STRUCTURE  AND  FUNCTIONS  OF  LOCAL  ASSOCIATIONS       65 

possible,  all  operating  and  capital  expenditures  will  be 
levied  against  the  grain  necessitating  them.  When  grain 
contributed  to  the  U.  S.  G.  G.  is  sold  by  it  on  a  grain  ex- 
change and  no  other  service  of  a  substantial  character  is 
performed,  it  may  levy  against  such  grain  not  more  than 
one  per  cent  of  its  value,  "unless  the  standard  charge  for 
similar  service  shall  be  more  than  one  per  cent."^^  "On 
other  grain  w^here  facilities  requiring  capital  invest- 
ment are  used,  the  maximum  deductions  for  any  one  year 
from  the  proceeds  of  all  sales  of  grain  to  be  made  for  cap- 
ital expenditures,  interest  charges,  etc.,  (aside  from 
ordinary  operating,  including  overhead  expenses)  in  order 
to  acquire  ownership  or  control  over  marketing  facilities 
shall  in  no  case  exceed  one  per  cent  of  the  value  of  the  grain 
so  handled  by  the  U.  S.  Association."®^  xhe  amount  of 
expenditures  deducted  for  the  cost  of  handling  and  for  such 
other  charges  as  shall  be  deemed  necessary  by  the  board  of 
directors,  will  always  be  estimated  for  the  ensuing  year.  In 
case  the  sum  exceeds  the  requirements,  the  board  of  di- 
rectors at  its  own  discretion  may  invest  the  balance  of  the 
sum  to  meet  future  obligations  or  it  may  distribute  this 
balance  to  the  individual  members.®^ 

The  U.  S.  G.  G.  at  stated  intervals  will  issue  certificates 
to  the  local  affiliated  companies  or  associations,  indicating 
the  proportionate  amounts  deducted  from  the  proceeds  for 
the  cost  of  handling  and  for  the  acquisition  of  facilities 
deemed  necessary  in  carrying  out  its  purposes.  The  affili- 
ated companies  will  issue  certificates  to  the  individual 
members,  based  on  those  received  from  the  national  asso- 
ciation. "The  said  certificates  shall  be  assignable  freely  by 
endorsement;  but  shall  not  be  deemed  as  obligations  of  the 
U.  S.  Association  with  definite  or  other  maturity,  and  shall 
not  bear  interest;  and  they  shall  not  represent  any  obliga- 
tions or  rights,  other  than  a  proportionate  ownership  in 
certain  assets  held  by  the  U.  S.  Association,  which  shall 
not  be  separable  or  subject  to  distribution  during  the  life  of 


«i  Loc.  cit,  Sec.  12. 
92  Ibidem. 
9'  Ibidem. 


66  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

the  U.  S.  Association  except  at  the  option  of  the  duly  con- 
stituted Board  of  Directors.  *  *  *"  »* 

This  then  in  brief  outline  presents  the  "Plan  of  the 
Committee  of  Seventeen"  as  finding  application  in  the  U. 
S.  Grain  Growers,  Inc.  While  the  organization  is  as  yet 
distinctly  in  the  formative  stage,  the  soliciting  of  members 
and  the  affiliating  of  local  companies  is  well  under  way  in 
several  of  the  important  grain  producing  States.^^  That 
the  plan  as  thus  far  elaborated  may  have  to  be  modified 
in  order  to  accommodate  itself  to  conditions  that  may 
not  have  been  foreseen,  is  readily  appreciated.  It  will 
likewise  not  be  surprising  that  the  plan  should  not  meet 
with  universal  approval  even  among  those  who  are  firm 
believers  in  the  value  of  cooperative  marketing,  if  we  con- 
sider the  vastness  or  magnitude  of  the  plan  itself,  and 
especially  if  we  consider  the  manifold  minute  provisions  of 
the  two  contracts  summarily  outlined  in  the  preceding 
pages.^^  A  study  shall  now  be  made  of  those  agencies  or 
associations  which  have  assisted  the  local  companies  in  per- 
forming their  functions,  and  thereby  have  contributed  ma- 
terially in  advancing  the  cooperative  elevator  movement  to 
a  stage  where  an  organization  like  the  N.  S.  Grain  Growers, 
Inc.,  became  a  possibility. 


»♦  Ibidem. 

•»  See  American  Cooperative  Manager,  April  25,  1922,  p.  288. 

««  Mr.  Charles  Kenning,  the  president  of  the  Minnesota  Farmers'  Grain 
Dealers'  Association,  has  offered  various  objections  to  the  plan,  and  has 
published  them  in  a  brochure,  entitled.  Question  Book  regarding  the  Pro- 
posed  Grain  Marketing  Plan  of  the  Committee  of  Seventeen.  It  is  to  be 
noted,  however,  that  Mr.  Kenning  is  not  here  writing  in  the  name  of  the 
association. 


CHAPTER  IV.  ^  __ 

AGENCIES  PROMOTING  COOPERATIVE  GRAIN 
MARKETING. 

Cooperative  grain  marketing  as  representative  of  a 
movement,  shows  a  uniformity  of  development,  v^^hich  has 
manifested  itself  in  the  tendency  toward  centralization. 
After  a  number  of  local  companies  had  been  formed  within 
a  state,  they  soon  realized  that  they  could  advance  their 
common  interests  more  effectively  by  concerted  action. 
This  conviction  led  them  to  organize  farmers'  state  grain 
dealers'  associations.  In  all  of  the  North  Central  States 
except  Wisconsin,  such  associations  have  been  organized. 
In  1913  the  then  existing  state  associations  federated  into 
the  National  Council  of  Farmers  Cooperative  Associations, 
an  organization  which  represents  the  interests  of  the  co- 
operative elevator  movement  in  matters  of  interstate  and 
national  import.  The  necessity  of  an  official  organ  devot- 
ing itself  to  the  educational  and  publicity  aspects  of  the 
movement,  was  also  soon  recognized,  and  this  led  to  the 
formation  of  the  American  Cooperative  Publishing  Com- 
pany in  1911.  All  these  organizations  have  as  their  sole 
purpose  the  promoting  of  cooperative  grain  marketing. 
But  besides  these,  there  are  several  other  rural  business 
associations  in  which  the  promoting  of  cooperative  grain 
marketing  forms  an  important  phase  of  their  activities. 
The  principal  ones  are:  the  Farmers'  Educational  and 
Cooperative  Union,  more  commonly  known  as  the  Farmers' 
Union;  the  American  Society  of  Equity;  the  Farmers' 
Equity  Union;  the  Non-partisan  League;  and  the  Ameri- 
can Farm  Bureau  Federation.  An  indication  of  the  struc- 
ture and  functions  of  these  agencies  in  relation  to  the  local 
cooperative  elevator  companies  will  be  of  value. 

As  early  as  1903,  farmers'  state  grain  dealers'  asso- 
ciations were  organized  in  Illinois  and  Nebraska,  and  in 
the  following  year  the  companies  of  Iowa  also  united  into 

67 


68  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

a  state  association.  In  1907,  associations  were  organized  in 
Minnesota  and  South  Dakota.  Four  years  later  the  state 
association  of  North  Dakota  was  formed,  and  in  1913  that 
of  Kansas.  The  state  associations  of  Ohio  and  Indiana 
were  organized  in  1916.  The  most  recent  associations  are 
those  of  Michigan^  and  Missouri,  the  former  organized  in 
1918,  and  the  latter  in  the  following  year.  The  only  state, 
therefore,  of  the  North  Central  Group,  in  which  no  state 
association  has  as  yet  been  formed  is  Wisconsin.^ 

The  scope  and  purpose  of  the  state  associations  are 
everywhere  similar.  The  following  declaration  from  the 
preamble  of  the  constitution  of  the  Iowa  Association  may 
be  taken  as  typical.  This  association  proposes  **to  advance 
the  commercial  interests  of  the  cooperative  organizations 
of  the  State,  engaged  in  the  handling  of  grain,  to  inculcate 
just  and  equitable  principles  of  trade;  to  acquire,  preserve, 
and  disseminate  valuable  business  information;  and  to  en- 
courage frequent  intercourse  and  consultation  among  its 
members  for  the  promotion  of  their  common  interests."  The 
state  associations  do  not  in  any  way  interfere  with  the 
autonomy  of  the  local  companies.  The  latter  are  at  perfect 
liberty  to  affiliate  themselves  with  the  respective  state  asso- 
ciation, and  upon  affiliation  retain  their  freedom  to  market 
their  grain  and  to  purchase  their  supplies  according  to  their 
own  wishes.  The  state  associations  aim  to  facilitate  the 
performance  of  these  functions  by  assisting  the  local  com- 
panies in  matters  of  transportation,  terminal  market  facil- 
ities and  legislation;  and  by  assisting  them  in  other  ways, 
such  as  providing  valuable  business  information,  legal  ad- 
vice, advantageous  bonding  and  insurance  rates,  supplying 
auditors,  collecting  damage  claims,  locating  managers  for 
companies  seeking  them,  aiding  local  companies  to  re- 
organize on  a  new  basis  of  conducting  their  business,  and 


^  The  state  association  of  Michigan  can  really  not  be  called  a  distinct 
organization  since  shortly  after  its  formation,  it  amalgamated  at  least 
partially  with  the  State  Farm  Bureau  of  Michigan. 

2  The  reasons  for  this  are  very  probably  the  fact  that  Wisconsin  is  not  a 
relatively  important  grain  producing  State,  and  secondly,  the  presence  of 
the  American  Society  of  Equity,  the  aims  of  which  are  very  similar  to 
those  of  the  state  associations,  and  which  is  very  prominent  in  Wisconsin. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  69 

assisting  the  farmers  of  a  community  who  contemplate  the 
formation  of  a  company.  ~ 

Any  cooperative  organization  in  the  state,  engaged  in  the 
handling  of  grain  and  willing  to  comply  with  the  regula- 
tions of  the  association,  may  be  admitted  to  membership 
upon  the  approval  of  the  board  of  directors.  The  unit  of 
membership,  therefore,  is  the  local  company  just  as  the  in- 
dividual growers  are  the  units  of  membership  in  it.  A 
board  of  directors,  consisting  of  a  president,  vice-president, 
secretary,  treasurer,  and  several  other  persons,  constitute 
the  governing  body  of  the  associations. 

Each  state  association  holds  an  annual  convention.  This 
is  generally  held  during  the  winter  months.  At  this  meet- 
ing the  board  of  directors  offers  its  report  through  the 
secretary;  particular  problems  of  the  cooperative  elevator 
movement  are  discussed;  papers  are  contributed  on  sub- 
jects relative  to  agriculture  and  marketing  by  men  expert 
in  these  subjects;  and  resolutions  are  drafted  stating  the 
specific  aims  toward  the  attainment  of  which  the  members 
are  to  devote  their  efforts  during  the  following  year. 

Upon  the  secretary  devolves  the  greater  part  of  the  work 
of  the  association.  In  a  manner  his  activities  may  be  said 
to  be  co-extensive  with  those  of  the  association  itself. 
Thus,  the  constitution  of  the  Iowa  Association,  which  may 
be  taken  as  typical,  specifically  provides : 

"It  shall  be  the  duty  of  the  secretary  to  encourage  the  forming  of 
cooperative  companies  for  the  handling  of  grain  and  to  assist  in  their 
organization  if  requested  to  do  so. 

"He  shall  respond  to  any  call  to  help  perfect  such  organizations  by 
going  to  the  place  of  meeting,  giving  all  information  possible  and  assist- 
ing such  organizations  to  be  completed  for  effective  work  in  the  co- 
operative field  when  he  deems  this  advisable." 

The  nature  and  variety  of  his  work  may  be  best  seen  by 
quoting  directly  from  one  of  the  reports.  The  following  is 
an  extract  from  the  Report  of  the  State  Secretary  of  the 
Illinois  Association  for  the  year  1919.^ 


^American  Cooperative  Journal,  Vol.  14,  No.  7,  pp.  250-1.  This  Report 
has  been  chosen  because  it  presents  very  briefly  the  most  important  aspects 
of  the  secretary's  work.  The  Report  is  not  quite  typical  in  as  far  as  it 
presents  the  activities  of  sixteen  months  and  of  one  of  the  most  prominent 
State  Associations. 


70       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

"Since  the  Galesburg  convention  your  secretary  has  attended  34  an- 
nual stockholders'  meetings,  39  organization  meetings,  15  directors' 
meetings,  visited  23  companies  on  income  tax  and  other  matters,  attended 
2  managers'  meetings,  made  2  trips  to  confer  with  President  Sailor  and 
one  to  confer  with  the  treasurer.  He  also  made  8  trips  to  Chicago  in 
connection  with  car  distribution,  scale  and  claim  matters  *  ♦  *  some 
of  which  were  anything  but  pleasant  undertakings.  He  also  made  8 
trips  to  Springfield  on  legal  and  legislative  matters,  3  to  Peoria  on  pro- 
gram and  convention  work,  1  to  Washington  on  transportation  matters 
and  others,  and  one  to  Omaha  to  sit  in  at  the  annual  convention. 

"The  work  of  the  association  has  steadily  increased  and  seems  to  have 
doubled  in  the  last  year.  Both  mail  and  callers  had  a  good  increase. 
Scarcely  a  day  now  passes  without  calls  from  our  own  people  and  also 
from  other  interests,  all  of  which  can  be  so  handled  as  to  help  our 
movement.  With  our  present  office  organization  it  is  impossible  to 
respond  to  all  calls  for  data  and  information." 

Because  of  the  constantly  increasing  activities  falling 
within  the  scope  of  the  associations,  the  majority  of  them 
now  employ  secretaries  who  devote  all  of  their  time  to 
secretarial  work.  In  the  following  States,  the  secretaries 
are  employed  on  full  time:  Illinois,  Iowa,  Indiana,  Ohio, 
South  Dakota,  Nebraska,  Kansas,  and  North  Dakota. 

The  board  of  directors  determines  the  membership  fee 
and  dues  to  be  in  force  during  its  term  of  office.  The  an- 
nual dues  are  generally  thirty  dollars.  Besides  this,  there 
is  a  car  fee  imposed,  which  is  generally  five  cents  for  every 
car  shipped  by  the  local  affiliated  companies. 

Although  the  state  associations  have  been  of  great  benefit 
to  the  local  companies,  their  lack  of  funds  has  in  a  measure 
limited  their  effectiveness.  As  just  stated,  they  are 
financed  by  the  local  affiliated  companies.  But  because 
many  of  the  benefits  which  the  state  associations  secure,  ac- 
crue to  all  the  companies  alike  whether  affiliated  or  not,  it 
has  been  difficult  and  in  many  cases  impossible  to  induce 
them  to  affiliate.  During  the  last  few  years,  however,  the 
associations  have  increased  their  membership  at  a  rather 
rapid  rate.  Thus,  the  Association  of  Illinois  at  the  begin- 
ning of  1917,  had  a  membership  of  204  companies,*  while 
at  the  beginning  of  1920  it  had  a  membership  of  312.^    The 


*  American  Cooperative  Journal,  Vol.  12,  No-  2,  p.  237. 
^  Sec.  Farlow  in  letter  to  writer. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  71 

Association  of  Iowa  experienced  a  similar  increase  within 
the  same  period.  From  238,^  the  membership  had  in- 
creased to  325.^  In  Kansas  the  rate  of  increase  has  been 
even  greater.  At  the  beginning  of  1917,  there  were  only 
100  companies  affiliated  with  the  state  association,^  while 
at  the  beginning  of  1920  the  number  had  increased  to  261.^ 

After  several  state  associations  had  been  formied,  it  was 
but  natural  that  these  should  federate  into  a  national 
organization,  which  could  represent  the  interests  of  the 
cooperative  elevator  movement  in  matters  of  interstate  and 
national  import.  At  Minneapolis'  in  1912,  such  an  organ- 
ization was  founded,  which  took  as  its  name.  The  National 
Council  of  Farmers'  Cooperative  Associations.  This  Coun- 
cil functioned  until  March,  1920,  when  at  the  annual  con- 
vention at  Chicago,  its  name  was  changed  to  The  Farmers' 
National  Grain  Dealers'  Association.^^  This  name,  it  was 
thought,  would  express  adequately  the  scope  of  its  activities 
by  indicating  more  obviously  its  relation  to  the  various 
state  associations,  and  at  the  same  time  would  distinguish 
it  more  readily  from  other  rural  organizations  with  similar 
objects  and  with  names  likewise  very  similar  to  the  one  the 
association  bore  before  the  change. 

The  constitution  of  the  national  association  was  revised 
at  the  convention  in  Chicago.  As  now  drafted  the  constitu- 
tion declares  that  the  object  of  the  association  shall  be: 

"To  encourage  and  promote  the  formation  of  cooperative  associations^; 
to  develop  uniformity  in  the  work  of  organization  of  such  associations 
and  of  state  associations;  to  correlate  and  strengthen  such  state  associa- 
tions by  federation  into  a  national  body ;  to  aid  and  assist  farmers'  ele- 
vator associations  and  farmers'  state  associations  in  matters  of  transpor- 
tation, markets,  and  cooperative  education;  to  secure  wise  and  uniform 
state  and  national  legislation  in  the  interests  of  the  farmers'  elevator 
companies;  to  furnish  legal  and  expert  advice  and  assistance  in  further- 
ance of  the  individual  interests  of  these  associations  and  to  perform  such 
other  work  as  may  be  of  benefit  to  its  members  in  the  furtherance  of 
the  cause."  1^ 


«  Loc.  cit.  Vol.  12,  No.  6,  p.  447. 

'''  Sec.  Myers  in  letter  to  writer. 

8  Loc.  cit.  Vol.  12,  No.  5,  p.  444. 

^  Sec.  Lawrence  in  letter  to  writer. 

''^^  American  Cooperative  Journal,  April,  1920,  p.  8. 

1^  Ibidem. 


72  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

The  unit  of  membership  is  the  state  association.  Any- 
state  association  upon  application  to  the  secretary  and  with 
the  approval  of  the  board  of  directors,  may  be  admitted  to 
membership.  The  officers  of  the  association  consist  of  a 
president,  vice-president,  secretary-treasurer,  and  two 
members  of  each  affiliated  state  association.  Together  they 
constitute  the  executive  committee.  The  secretary  is  in- 
vested with  a  large  degree  of  authority  and  responsibility, 
and  must  give  his  entire  time  to  the  business  of  the  organ- 
ization except  as  otherwise  arranged  with  the  executive 
committee.  Besides  a  secretary  the  association  employs  a 
legal  adviser,  who  represents  the  legal  interests  of  the 
movement,  especially  in  its  relation  to  the  railroads.  This 
position  has  been  held  for  several  years  by  the  Hon.  Clif- 
ford Thorne.  He  has  appeared  on  numerous  occasions  be- 
fore the  Interstate  Commerce  Commission  and  before  the 
Railroad  or  Public  Utilities  Commissions  of  the  various 
states  in  matters  of  railroad  legislation  and  litigation.^ ^ 

The  funds  with  which  to  promote  and  carry  on  the  work 
of  the  national  association  are  provided  by  the  affiliated 
state  associations.  They  are  required  to  pay  a  sum  equal  to 
25  per  cent  of  all  the  dues  collected  during  each  fiscal  year, 
such  payments  to  be  made  in  quarterly  installments.^^  This 
method  of  providing  funds  is  a  departure  from  the  former 
one,  by  which  the  regular  assessment  was  one  dollar  per 
year  for  each  member  (the  local  affiliated  elevator  com- 
pany) of  the  state  associations  affiliated  with  the  National 
Council.  Special  assessments  could  be  levied  whenever 
necessary  but  the  total  might  never  exceed  the  sum  of  five 
dollars  per  member  of  every  affiliated  state  association,  dur- 
ing one  fiscal  year.^*  Through  the  recently  adopted  method 
the  national  association  hopes  to  have  adequate  finances,  the 
lack  of  which  has  hampered  its  efficiency. 

The  necessity  of  an  official  organ  was  soon  recognized 
by  the  leaders  of  the  cooperative  elevator  movement.     To 


^2  See  esp.  American  Cooperative  Journal,  Vol.   12,  p.  715;  Vol.   14,  p. 
25  (Aug.,  1919). 

i3Loc.  cit.  Vol.  5,  p.  8,  (April,  1920). 
^*  Constitution  of  the  National  Council. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  73 

fill  this  need  the  American  Cooperative  Journal,  a  monthly 
publication,  was  launched  in  1905,  v^^ith  Mr.  C.  G.  Messerole 
as  its  first  editor .^^ 

Until  1911,  the  Journal,  v^^hich  was  the  official  organ  of 
the  movement  only  by  endorsement,  was  under  private 
ownership  and  management.  In  that  year  an  offer  was  ex- 
tended to  the  then  existing  state  associations  to  purchase 
the  Journal,  and  this  offer  was  accepted.^^ 

To  facilitate  the  transaction  of  business,  the  associations 
organized  themselves  into  a  corporation,  known  as  the 
American  Cooperative  Journal  Company.  On  Dec.  5,  1917, 
this  name  was  changed  to  that  of  the  American  Cooperative 
Publishing  Company,  a  name  adopted  to  express  more 
adequately  the  activities  in  which  the  Company  was  now 
engaged.  Besides  the  American  Cooperative  Journal,  it 
was  now  publishing  also  the  American  Cooperative  Man- 
ager, a  fort-nightly  magazine  edited  specially  for  the  bene- 
fit of  the  managers  and  boards  of  directors  of  the  local 
companies.^  ^ 

The  American  Cooperative  Journal  as  also  the  Manager 
have  articles  on  special  topics  relative  to  the  grain  trade; 
publishes  summary  reports  of  the  annual  conventions  held 
by  the  state  associations ;  discuss  particular  problems  of  the 
movement  and  record  its  activities  in  the  different  states; 
and  carry  advertisements  of  firms  soliciting  the  trade  of 
the  local  companies.  In  short,  they  represent  the  various 
branches  of  the  movement  in  its  educational  and  publicity 
aspects.  The  American  Cooperative  Publishing  Company 
is  under  the  management  of  Mr.  Millard  R.  Myers,  assisted 
by  a  staff  of  associate  and  contributing  editors.    Mr.  Myers' 


1*^  Mr.  Messerole  was  also  the  Secretary  of  the  Iowa  State  Association, 
and  manager  of  the  cooperative  elevator  company  at  Gowrie. 

i^For  conditions  leading  to  the  transfer  of  ownership,  see  brochure, 
The  American  Cooperative  Publishing  Company,  pp.  2,  3,  issued  by  the 
Company. 

^^  This  publication  was  first  issued  in  1916,  under  the  name  of  the  Suc- 
cessful Manager.  The  Company  has  likewise  organized  an  auditing  depart- 
ment for  the  purpose  of  auditing  the  accounts  of  those  companies  that  wish 
to  avail  themselves  of  its  service.  This  department  is  under  the  charge  of 
Mr.  Frank  S.  Betz,  who  has  likewise  perfected  a  simplified  accounting 
system  which  has  been  installed  in  very  many  of  the  local  companies. 


74  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

wide  study  of  cooperative  methods,  both  in  Europe  and  in 
this  country,  has  well  prepared  him  for  his  task.  Under 
his  management  the  Company  has  enjoyed  a  steady  growth, 
as  is  shown  by  the  fact  that  at  the  beginning  of  1920,  the 
subscription  list  of  the  Journal  numbered  68,000.^® 

The  agencies  thus  far  described  in  this  chapter,  devote 
their  entire  efforts  toward  advancing  the  interests  of  the 
cooperative  elevator  movement.  Besides  these,  there  are 
several  other  rural  organizations  operative  in  the  North 
Central  States,  in  which  the  promoting  of  cooperative  grain 
marketing  forms  a  phase  of  their  activities.  The  organiza- 
tions that  have  been  most  prominent  in  this  regard,  are  The 
Farmers'  National  and  Cooperative  Union  of  America,  The 
American  Society  of  Equity,  The  Farmers'  Equity  Union, 
The  Non-Partisan  League,  and  The  American  Farm  Bu- 
reau Federation.  A  brief  description  of  them,  especially 
in  their  relation  to  the  cooperative  elevator  movement,  may, 
therefore,  not  be  out  of  place. 

The  Farmers'  Educational  and  Cooperative  Union  of 
America,  more  commonly  known  as,  the  Farmers'  Union, 
is  of  Southern  origin,  the  first  local  union  having  been 
established  at  Smyrna,  Texas,  Sept.  2,  1902.^*  Its  purpose 
as  stated  in  the  constitution,  is  a  very  broad  one.  It  pro- 
poses : 

To  secure  equity,  establish  justice  and  apply  the  Golden  Rule. 

To  discourage  the  credit  and  mortgage  system. 

To  assist  the  members  in  buying  and  selling. 

To  educate  the  agricultural  classes  in  scientific  farming  and  the 
process  of  marketing. 

To  systematize  methods  of  production  and  distribution. 

To  eliminate  gambling  in  farm  products  by  Boards  of  Trade,  Cot- 
ton Exchanges,  and  other  speculators. 

To  bring  farming  up  to  the  standard  of  other  industries  and  busi- 
ness enterprises. 

To  secure  and  maintain  profitable  and  uniform  prices  for  cotton, 
grain,  live-stock,  and  other  products  of  the  farm. 


^^  American  Cooperative  Journal,  Jan.,  1920,  p.  1. 

1^  Charles  Barrett,  The  Mission,  History  and  Times  of  the  Farmers* 
Union,  p.  103.  Mr.  Barrett  is  the  national  president  of  the  Union.  His 
history  relates  the  activities  of  the   Union  till   1908. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  75 

To  strive  for  harmony  and  good  will  among  all  mankind  and 
brotherly  love  among  ourselves.  — 

To  garner  the  tears  of  the  distressed,  the  blood  of  martyrs,  the 
laugh  of  innocent  childhood,  the  sweat  of  honest  labor,  and  the  virtue 
of  a  happy  home  as  the  brightest  jewels  known. 

The  organization  comprises  a  national  union,  state, 
county,  and  local  unions.  No  local  union  may  be  formed 
without  at  least  five  male  members  ;2^  five  or  more  local 
unions  may  form  a  county  union,  and  a  state  having  a 
membership  of  5,000  male  members  may  be  granted  a 
state  charter.21 

At  the  beginning  of  1921,  the  Farmers'  Union  was  repre- 
sented in  26  states  according  to  the  National  Secretary,  Mr. 
E,  A.  Davis,  whose  headquarters  are  at  Gravette,  Arkansas. 
Among  the  North  Central  States,  it  is  represented  in  Kan- 
sas, Nebraska,  South  Dakota,  North  Dakota,  Minnesota, 
Iowa,  Illinois,  Indiana,  and  Missouri,^^  but  the  mem- 
bership is  comparatively  small  in  all  of  these  states 
except  in  Kansas,  Nebraska,  and  Iowa.  Within  the  past 
year  there  has  been  a  considerable  increase  in  membership 
in  South  Dakota,  Illinois,  and  Indiana,  and  at  the  present 
time  the  Union  is  carrying  on  an  active  campaign  for  new 
members  in  Wisconsin,  which  promises  a  large  increase  in 
membership  in  that  State.^' 

From  the  enumeration  of  its  aims,  it  is  seen  that  the 
Farmers*  Union  purposes  to  improve  the  fraternal,  educa- 
tional, social  and  economic  life  of  the  farmer.  Its  eco- 
nomic activities  have  been  chiefly  directed  toward  organiz- 
ing his  collective  bargaining  power  in  buying  and  selling. 
Its  aims,  therefore,  in  this  phase  of  its  activities  are  con- 
siderably wider  than  that  of  promoting  cooperative  grain 
marketing.  But  through  its  influence  and  activities,  many 
cooperative  grain  elevator  companies  have  been  organized. 
In  the  North  Central  States,  it  has  been  instrumental  in 
organizing  companies  in  Kansas,  Iowa,  South  Dakota,  and 


20  Membership  is  open  also  to  women. 

21  Constitution. 

22  L.  S.  Herron,  editor  of  the  Nebraska  Union  Farmer,  in  letter  to  writer. 

23  Ibidem. 


76       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

Nebraska.  In  the  last-named  State,  according  to  Mr.  L.  S. 
Herron,  editor  of  the  Nebraska  Union  Farmer,"  there  were 
at  the  beginning  of  April,  1920,  150  genuinely  cooperative 
elevators,  organized  through  the  Farmers  Union  activity.^' 

The  organization,  known  as  the  American  Society  of 
Equity,  was  founded  by  Mr.  J.  A.  Everett,  at  Indianapolis, 
Ind.,  Dec.  24,  1902.  Its  present  national  headquarters  are 
at  Madison,  Wisconsin.  The  structure  and  activities  of  this 
Society,  are  very  similar  to  those  of  the  Farmers'  Union. 
It  comprises  a  national  organization,  state,  county,  and 
local  unions.  Seven  persons  qualified  for  membership,  may 
organize  a  local  union;  five  chartered  local  unions  may 
organize  a  county  union ;  and  five  county  unions  may  unite 
into  a  state  union.^*  The  total  membership  of  the  Society 
was  about  40,000  at  the  beginning  of  1921. ^^  It  has  a  scat- 
tered membership  in  Minnesota,  North  Dakota,  Michigan, 
Iowa,  and  Illinois,  but  its  stronghold  is  in  Wisconsin,  where 
the  state  union  has  a  membership  of  about  30,000.^® 

The  objects  of  the  State  Union  as  expressed  in  the  con- 
stitution are: 

To  obtain  profitable  prices  for  all  products  of  the  farm,  garden, 
orchard,  and  dairy. 

To  have  built  and  maintained  granaries,  elevators,  warehouses, 
and  cold  storage  houses  on  the  farms,  in  the  principal  market  cities, 
and  in  all  places  where  necessary  so  that  farm  produce  may  be  stored 
and  preserved  to  obtain  equitable  prices. 

To  secure  legislation  in  the  interest  of  agriculture. 

To  secure  and  disseminate  information  regarding  market  prices, 
transportation,  routing,  and  service. 

To  encourage  cooperative  business  activities  and  collective  bargain- 
ing by  central  advisory  agency  to  be  located  at  State  headquarters. 

To  secure  better  educational  advantages  in  our  rural  districts. 


2^  This  is  the  official  organ  of  the  Nebraska  State  Union. 

25  Maurice  H.  Weseen,  The  Cooperative  Movement  in  Nebraska,  p.  479. 
in  "Journal  of  Political  Economy"   (April,  1920). 

2«  Constitution  and  By-laws. 

2'  J.  F.  Shaw,  editor  of  the  Equity  News,  in  letter  to  writer. 

*^  Ibidem. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  77 

To  improve  our  highways. 

To  prevent  adulteration  of  food  and  marketing  of  same.  ~ 

To  promote  sociability. 

To  encourage  arbitration  of  differences,  disputes,  etc. 

Hence,  its  purpose  is  very  much  wider  than  that  of  pro- 
moting cooperative  grain  marketing,  but  through  its  direct 
activity  and  encouragement,  many  cooperative  elevator 
companies  have  been  organized  in  the  Northwest.^* 

Another  organization  that  has  taken  an  active  part  in 
furthering  cooperative  grain  marketing  in  the  North  Cen- 
tral States  is  the  Farmers*  Equity  Union.  It  was  founded 
by  Mr.  C.  0.  Drayton,  at  Greenville,  Illinois,  and  was 
chartered  under  the  laws  of  that  State,  on  Dec.  16,  1910. 
As  stated  in  a  brochure  by  the  National  Secretary,  Mr. 
Leroy  Melton,  "the  purpose  of  this  organization  is  to  unite 
the  buying  and  selling  power  of  a  large  number  of  farmers 
and  consumers  in  one  body  and  eliminate  a  large  share  of 
the  middleman's  profit."^^  The  Equity  Union  is  repre- 
sented in  13  states,  and  had  a  membership  of  33,000  at  the 
beginning  of  1921.^^ 

The  Farmers*  Equity  Union  is  composed  of  three  distinct 
parts,  the  national  union,  centralized  companies,  and  local 
exchanges.  The  national  union  is  governed  by  a  board  of 
directors,  who  are  elected  annually  by  the  delegates  at  the 
national  convention.  Each  local  exchange  that  has  paid  its 
dues  to  the  national  union,  has  a  right  to  be  represented  by 
a  delegate.  The  primary  object  of  the  national  union  is  to 
organize  local  exchanges ;  to  educate  its  members  to  the  ad- 
vantages of  cooperative  buying  and  selling;  and  to  be  the 
guiding  force  of  the  organization.  The  centralized  com- 
panies are  corporations  established  in  the  central  markets. 
The  type  of  business  engaged  in  by  these,  depends  upon  the 
particular  local  exchanges  they  are  to  serve.  In  Kansas 
City,  for  instance,  the  centralized  company  is  a  grain  com- 
mission firm. 


2^  Ibidem;  Cf.  John  F.  Sinclair,  Opus  cit.  p.  31. 
30  The  Equity  Union,  Its  Plan  and  Purpose,  p.  1. 
*i  Leroy  Melton  in  letter  to  writer. 


78  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

The  local  exchanges  are  corporations  founded  at  local 
market  points.  Just  as  the  business  of  the  centralized  com- 
panies is  determined  by  the  particular  local  exchanges  they 
are  to  serve,  so  the  type  of  business  engaged  in  by  the  local 
exchanges  is  determined  by  the  needs  of  the  community. 
If  an  exchange  is  to  be  established  in  a  dairying  section, 
the  corporation  will  take  the  form  of  a  cooperative  cream- 
ery company;  if  the  section  is  one  where  grain  is  ex- 
tensively grown  the  organization  will  be  a  cooperative 
grain  elevator  company. 

In  the  North  Central  States,  the  local  exchanges  were 
distributed  as  follows,  at  the  beginning  of  1921:  South 
Dakota,  44;  North  Dakota,  24;  Nebraska,  38;  Indiana,  26; 
Ohio,  78;  Kansas,  62;  Illinois,  30;  Missouri,  2.3^  Many  of 
these  local  exchanges  are  cooperative  elevator  companies. 

The  influence  that  these  rural  organizations,  just  briefly 
described,  exert  in  promoting  cooperative  grain  marketing, 
is  not  easy  to  trace  in  terms  of  definite  results.  Without 
doubt  it  is  much  wider  than  that  of  merely  being  instru- 
mental in  bringing  about  the  establishing  of  local  com- 
panies. All  of  them  publish  journals  in  which  cooperative 
marketing  is  stressed;  and  all  of  them  in  various  ways  at- 
tempt to  arouse  the  farmer  to  the  need  of  organized  effort 
in  his  business  affairs.  They  also  promote  legislation 
facilitating  the  organization  and  operation  of  cooperative 
business  enterprises,  and  in  this  way  contribute  toward 
placing  the  cooperative  elevator  movement  on  a  firmer 
basis. 

A  very  recent  organization,  founded  to  advance  the  in- 
terests of  the  agricultural  population,  especially  the  grain- 
growing  section  of  it,  is  the  Non-partisan  League.  Un- 
like the  previous  associations  described  in  this  chapter,  it  is 
political  in  character.  The  immediate  cause  for  its  found- 
ing centers  around  a  controversy  which  had  raged  in  North 
Dakota  for  some  years,  concerning  the  question  whether 
the  State  should  engage  in  the  business  of  owning  and 


« Ibidem. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  79 

Operating  terminal  grain  elevators.  It  was  the  opinion  of 
the  farmers,  who  constitute  almost  70  per  cent  of  the 
population,  that  the  State  should  do  so.  But  the  taking  of 
such  a  step  would  have  been  contrary  to  the  State  Consti- 
tution. To  meet  this  difficulty  the  Constitution  was 
amended,  and  in  accordance  with  the  prevailing  view  that 
the  State-owned  elevator  should  be  located  at  Minneapolis 
or  Duluth,  the  principal  grain  markets  for  North  Dakota 
grain,  the  amendment  gave  permission  to  the  government 
to  own  and  operate  a  terminal  elevator  outside  of  the  State. 
In  the  meantime  sentiment  changed  in  favor  of  the  ele- 
vator^s  being  located  within  the  State  boundaries,  but  since 
the  previous  amendment  did  not  confer  this  right,  the  pass- 
ing of  another  amendment  was  necessary.  Several  years 
elapsed  before  the  two  amendments  were  passed,  and  thus 
the  launching  of  the  project  which  the  farmers  considered 
necessary  for  their  well-being,  was  deferred.  Upon  the 
passage  of  the  second  amendment,  the  State  Legislature 
selected  a  committee  to  investigate  the  advisability  of  the 
State's  engaging  in  such  an  enterprise.  The  report  of  the 
committee  was  unfavorable  as  to  erecting  a  State-owned 
terminal  elevator  either  within  or  outside  of  North  Dakota. 
It  was  at  this  juncture,  in  1915,  that  the  farmers,  under  the 
leadership  of  Mr.  Arthur  C.  Townley,  formed  the  Non- 
partisan League.^^ 

While  the  immediate  cause  of  the  origin  of  the  League 
centers  around  the  controversy  just  mentioned,  the  funda- 
mental cause  is  found  in  the  dissatisfaction  of  the  farmers 
of  the  State  with  the  spread  between  the  price  of  grain  that 
they  received  and  that  paid  for  grain  products  by  the  ulti- 
mate consumer.  This  spread  they  considered  entirely  too 
large,^*  chiefly  in  their  opinion,  because  of  the  "magic  of 
the  mixing  houses,"  ^^  the  terminal  elevators  of  Minneapolis 


88  Frank  O'Hara,  The  N on-Partisan  League  of  North  Dakota,  a  Study 
and  Outlook,  pp.  8,  9;  Charles  Edward  Russell,  The  Story  of  the  Non^ 
partisan  League,  A  Chapter  in  American  Evolution,  pp.  102-108,  261 ; 
Senator  Ladd,  Congressional  Record,  67th  Cong.,  1st  sess.,  Vol.  61,  No.  18, 
p.  882  (May  2,  1921). 

3*  O'Hara,  Opus  cit.  p.  8 ;  Russell,  Opus  cit.  Chapters  III,  IV,  and  IX ; 
Senator  Ladd,  ibidem. 

88  Russell,  Loc.  cit.  p.  34. 


80  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

and  Duluth.  Similarly,  they  considered  the  spread  too 
large  between  the  prices  paid  for  the  higher  and  lower 
grades  of  grain.^*'  To  correct  the  first  of  these  evils,  they 
thought  it  necessary  that  the  State  own  and  operate  the 
"mixing  houses"  for  the  grain  grown  in  North  Dakota,  and 
to  correct  the  second,  they  demanded  a  new  grain  grading 
law.  Since  these  measures  could  not  be  secured  from  the 
men  in  political  power  at  the  time,  the  alternative  that 
remained  in  their  opinion,  consisted  in  forming  themselves 
into  an  organization  which  would  bring  into  political 
power  men  who  would  carry  out  their  demands.  This 
twofold  purpose  to  be  achieved  through  political  action, 
constituted  the  immediate  program  of  the  Non-partisan 
League  at  its  founding. 

Although  political  in  character,  the  Non-partisan  League 
is  not  a  distinct  political  party  in  the  ordinary  acceptation 
of  that  term.  Rather  should  it  be  called  "a  political  ma- 
chine in  which  the  paying  members  theoretically  have  a 
votce  in  selecting  the  leaders,  *  ♦  *  decide  upon  the 
policies  of  the  organization  and  appoint  men  who  are  to 
be  supported  in  the  election.  It  is  then  the  duty  of  the 
members  and  of  their  friends  to  see  that  the  persons  chosen 
by  the  machine  shall  be  supported  in  the  election."  ^^ 
The  League  is  non-partisan  in  so  far  as  it  will  support 
the  candidates  of  any  political  party  provided  they  seek 
to  further  its  aims. 

The  Non-partisan  League  met  with  ready  favor  immedi- 
ately upon  its  founding,^^  and  its  growth  since  then  has 
been  very  rapid.  According  to  Mr.  Russell  it  had  245,000 
dues-paying  members  on  October  1,  1919,  was  organized 
in  13  States,  and  had  three  Representatives  in  Congress.^^ 

The  first  political  victory  of  the  League  in  North  Dakota 
occurred  in  the  election  held  in  the  fall  of  1916,  when  it 


3«0'Hara,  Loc.  cit.  p.  8;  Russell,  Loc,  cit.  Chapter  V;   Senator  Ladd, 
Jbidetn. 

3T  O'Hara,  Opus  cit.  p.  9. 

38  Ibidem.  , 

39  Opus  cit.  p.  323. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  $1 

gained  control  of  the  executive  and  of  part  of  the  legisla- 
tive branch  of  the  government  through  the  election  o^ 
Governor  Frazier  and  of  a  large  number  of  State  Represen- 
tatives. This  victory  was  made  complete  in  the  election  of 
1918,  when  all  the  departments  of  the  government  came 
under  the  control  of  men  endorsed  by  the  League.  It  was 
now  in  a  position  to  enact  its  political  program.  A  State- 
owned  mill  and  terminal  elevator  were  authorized  as  also 
the  State-owned  bank,  which  has  received  more  publicity 
than  any  other  feature  of  the  program  and  which  is  a 
unique  institution  in  this  country.  An  Industrial  Com- 
mission was  created,  consisting  of  the  Governor,  the  At- 
torney-General, and  the  Commisioner  of  Agriculture  and 
Labor,  to  supervise  all  the  public  utilities.  Another  bill  en- 
acted into  law,  created  the  office  of  State  Inspector  of 
Grades,  Weights,  and  Measures.*^  A  system  of  State  hail 
insurance  and  a  home  building  association  were  likewise 
authorized  and  established.  , 

The  foregoing  measures  were  intended  primarily  for 
the  benefit  of  the  farmers  of  the  State.  Among  laws  deal- 
ing with  other  phases  of  industry,  we  may  mention  the 
workmen's  compensation  act ;  a  minimum  wage  for  women ; 
a  restriction  of  the  hours  of  employment  for  women  to 
eight ;  the  prohibition  of  child  labor ;  the  prohibition  of  the 
use  of  the  injunction  in  labor  disputes;  and  the  right  of 
picketing  in  case  of  a  strike. 

Some  of  the  measures,  especially  those  mentioned  in  the 
last  paragraph,  represent  no  departure  from  legislation 
in  other  States.  This  of  itself  does  not,  indeed,  give  them 
the  stamp  of  approval,  but  it  at  least  frees  them  from  the 
accusation  of  being  novel  and  radical.  The  measures  in- 
tended primarily  for  the  benefit  of  the  farmers,  are  ex- 
perimental in  the  sense  that  they  have  not  been  previously 
tried  in  this  country.  Their  soundness  is  being  tested  by 
experience.    As  Professor  O'Hara  remarks  in  his  study  of 


**  Dr.  Ladd,  the  present  Senator   from  North   Dakota,  held  thig  office 
for  a  time. 


82  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

the  League:  *'There  is  no  compelling  reason  against  the 
State  of  North  Dakota  undertaking  to  run  a  State  bank 
or  to  own  and  operate  a  system  of  State  flour  mills  and 
grain  elevators  and  packing  plants.  These  industries  are 
industries  in  which  the  people  are  vitally  interested  and 
they  will  watch  them  closely.  This  particular  experiment 
has  as  good  a  chance  for  success  in  North  Dakota  as  in  any 
State.  From  the  point  of  view  of  a  laboratory  for  social 
experiment,  therefore,  no  better  place  could  be  found."  *^ 

It  is  doubtful  whether  the  Non-partisan  League  will 
continue  to  grow  at  the  rate  that  it  has  grown  in  the 
past.  Considerable  friction  has  existed  among  its  leaders 
for  some  time.  There  has  been  a  strong  revolt  from  the 
leadership  of  Townley  and  others  of  the  socialistically  in- 
clined.*^ The  most  recent  development  in  North  Dakota, 
the  stronghold  of  the  League,  is  the  ousting  of  Lynn 
Frazier,  the  Governor,  William  Lemke,  the  Attorney-Gren- 
eral,  and  J.  N.  Hagan,  the  Commissioner  of  Agriculture 
and  Labor,  in  the  recall  election  held  October  28,  1921. 
This  defeat  is  the  more  serious  because  these  three  officers 
constitute  the  personnel  of  the  Industrial  Commission, 
through  the  control  of  which  the  League  was  largely  exer- 
cising its  sway  over  the  politics  of  the  State.  On  the  other 
hand,  the  several  measures  submitted  to  the  voters  at  the 
same  election,  were  sustained  as  advocated  by  the  League. 
The  result  of  the  election  would  then  seem  to  indicate  that 
the  farmers  still  subscribe  to  the  fundamental  issues  of 
their  program,  but  that  they  have  become  dissatisfied  with 
their  leaders  and  their  methods. 

In  describing  the  attitude  of  the  Non-partisan  League 
toward  cooperative  grain  marketing,  a  distinction  must  be 
drawn.  The  League  favors  the  founding  of  local  coopera- 
tive elevator  companies.  The  main  abuses  of  the  grain 
trade,  however,  according  to  their  view,   center   in  the 


^1  Opus.  cit.  p.  18. 

*2  The  most  prominent  of  those  breaking  away  from  this  leadership,  is 
William  Langer,  the  former  Attorney-General.  See  his  work,  The  Non- 
partisan League;  Its  Birth,  Actiinties  and  Leaders. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  83 

terminal  markets,  and  these  abuses  can  best  be  eliminated 
through  State-ownership  and  operation  of  the  marketing 
facilities  located  there.  In  this  the  ideal  of  the  Non-parti- 
san League  is  a  departure  from  that  of  the  cooperative 
elevator  movement.  The  latter  would  have  the  ownership 
of  these  facilities  vested,  not  in  the  State,  but  in  the  local 
companies,  either  through  centralized  associations  or 
through  a  national  association,  such  as  the  U.  S.  Grain 
Growers,  Inc. 

The  most  recent  national  organization,  designed  to  ad- 
vance the  interests  of  the  agricultural  population  of  this 
country,  is  the  American  Farm  Bureau  Federation,  founded 
at  Chicago,  March  4,  1920.^^  This  federation  represents 
the  natural  outgrowth  of  State  farm  bureau  federations, 
which  in  turn  are  a  development  of  county  farm  bureaus, 
the  first  of  which  was  organized  in  1911.  The  objects  of 
the  federation  as  stated  in  one  of  its  brochures,  are : 

"To  develop,  strengthen,  and  correlate  the  work  of  the  State  Farm 
Bureau  Federations  of  the  nation;  to  encourage  and  promote  coopera- 
tion of  all  representative  agricultural  organizations  in  every  effort  to 
improve  facilities  and  conditions  for  the  economic  and  efficient  produc- 
tion, conservation,  marketing,  transportation,  and  distribution  of  farm 
products;  to  further  the  study  and  enactment  of  constructive  agricul- 
tural legislation;  to  advise  with  representatives  of  the  public  agricul- 
tural institutions  cooperating  with  Farm  Bureaus  in  the  determination 
of  nation-wide  policies,  and  to  inform  Farm  Bureau  members  regarding 
all  movements  that  affect  agriculture."  ** 

From  this  comprehensive  statement  of  its  aims,  it  is 
readily  seen  that  the  scope  of  the  federation  is  very  wide. 
It  does  not  purpose  to  displace  existing  rural  organizations, 
but  to  assist  them  in  carrying  out  their  local  interests  and 
to  unite  them  as  far  as  possible  on  national  issues  for  the 
advancement  of  agriculture  and  rural  life. 

The  fundamental  units  of  the  federation  are  the  county 
bureaus,  of  which  there  were  more  than  1,600  on  December 


*3  See  pamphlet  issued  by  the  federation,  American  Farm  Bureau  Federa- 
tion; What  is  it? 
**  Ofyus.  cit.  p.  16. 


84  THE   COOPERATIVE  ELEVATOR   MOVEMENT 

1,  1920.*^  The  county  bureaus  may  unite  into  State  federa- 
tions, and  they  in  turn  may  become  members  of  the  na- 
tional body,  which  is  represented  in  37  States  and  claims 
a  membership  of  more  than  1,000,000.*^ 

Control  of  the  federation  rests  in  a  board  of  directors, 
elected  by  the  State  federations  and  other  organizations 
eligible  to  membership.  Each  affiliated  State  association 
is  entitled  to  one  director,  a  number  which  may  be  in- 
creased provided  the  State  federations  in  question  meet  the 
specified  requirements.  Each  director  must  be  a  bona  fide 
farmer,  .and  he  has  equal  voting  power  on  all  questions 
with  other  directors.*^ 

The  board  of  directors  elects  all  of  the  officers  of  the 
federation,  except  the  secretary  and  treasurer.*^  These  are 
elected  by  the  executive  committee,  which  in  turn  is  elected 
by  the  board  of  directors  from  its  own  members.*^  The 
executive  committee  consists  of  twelve  members,  who  hold 
office  for  one  year,  and  have  charge  of  the  administrative 
affairs  of  the  federation.  Three  members  of  the  executive 
committee  must  be  chosen  from  the  Northeastern  States, 
three  from  the  Middlewestern,  three  from  the  Southern, 
and  three  from  the  far  Western  States.^^ 

The  funds  necessary  to  carry  on  the  projects  of  the 
federation  are  supplied  by  annual  dues.  "The  annual  dues 
of  each  member  State  in  the  American  Farm  Bureau 
Federation  shall  be  fifty  cents  per  capita  of  the  individual 
County  Farm  Bureau  membership  affiliated  with  the  State 
organization,  provided  that  in  States  not  having  member- 
ships the  dues  shall  be  fixed  by  the  Executive  Committee 
in  reasonable  proportion  to  the  other  States."  "^ 

There  are  seven  departments  through  which  the  federa- 
tion carries  on  its  activities.     The  Organization  Depart- 


*^  Loc.  cit.  p.  3. 
*6  Ibidem. 

47  Constitution,  Art.  IV,  Sec.  1  and  2. 
*8  Loc.  cit..  Art.  VII,  Sec.  2  and  3. 
*^  Ibidem,  Sec.  5  and  6. 

^^  Ibidem,  Art.  VIII,  Sec.  1.     The  states  comprised  under  each  division 
are  indicated  in  Sec.  2. 
61  Ibidem,  Art.  V,  Sec.  1. 


AGENCIES  PROMOTING  COOPERATIVE  MARKETING  85 

ment  is  intended  to  serve  as  a  means  of  increasing  the 
membership,  and  strengthening  the  stability  of  the  federa- 
tion. The  Legislative  Department,  located  at  Washington, 
D.  C,  is  designed  "to  safeguard  the  rights  and  interests 
of  the  farmers  and  to  assert  his  needs  whenever  occasion 
requires  in  matters  pertaining  to  legislation."  "  It  is  the 
object  of  the  Department  of  Transportation  to  represent 
the  agricultural  interests  in  the  transportation  of  farm 
products.  The  Department  of  Economics  and  Statistics 
deals  with  "improved  cost  accounting  methods  for  farmers, 
crop  statistics  and  forecasts,  price  and  credit  analyses, 
crop  conditions,  weather  conditions,  tendencies  in  tariff, 
merchant  marine,  internal  revenue,  ocean  freight,  cost  of 
production,  etc."  ^^  The  financing  of  the  federation  is  under 
the  control  of  the  Finance  Department.  The  Department 
of  Education  and  Publicity  seeks  "to  keep  the  general 
public  sympathetically  informed  as  to  the  ideas  and  accom- 
plishments of  organized  agriculture."  "  The  issuing  of 
weekly  news  letters  and  of  feature  stories  to  the  agricul- 
tural press,  the  distribution  of  pamphlets  and  speeches 
dealing  with  agricultural  subjects,  are  also  among  the 
activities  of  this  department.  To  these  departments,  one 
more  must  be  added,  namely,  that  of  Cooperative  Mar- 
keting. This  department  aims  to  give  assistance  to  com- 
munities desirous  of  organizing  cooperative  business  en- 
terprises, and  to  unite  these  enterprises  on  a  national 
basis.  It  was  under  the  auspices  of  the  American  Farm 
Bureau  Federation  that  the  conference  was  called  that 
elected  the  Committee  of  Seventeen,  which  has  elaborated 
the  plan  for  placing  cooperative  grain  marketing  on  a 
national  basis.*' 

The  work  done  in  the  interest  of  cooperative  grain  mar- 
keting by  the  various  State  Agricultural  Colleges,  the  State 
Departments  and  especially  by  the  U.  S.  Department  of 


'^^  American  Farm  Bureau  Federation;  What  is  it?  p.  6. 

»3  Opus  cit,  p.  7. 

»*  hoc.  cit.  p,  8. 

'^^  hoc.  cit.  p.  6.  For  an  extensive  treatment  of  the  American  Farm  Bu- 
reau Federation  the  reader  is  referred  to  the  very  recent  work,  The  Farm 
Bureau  Movement,  by  Orville  Kile. 


86       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

Agriculture,  cannot  be  easily  overestimated.  As  stated  in 
one  of  its  Bulletins,  the  U.  S.  Department  of  Agriculture 
"considers  cooperative  organization  a  primary  and  funda- 
mental project  *  *  *  a  corrective  measure  that  will 
place  the  industry  upon  a  solid  basis."  ^^  The  Office  of 
Markets  and  Rural  Organization  has  devoted  considerable 
attention  to  the  subject  of  cooperative  grain  marketing. 
Through  visits  and  correspondence  of  its  personal  repre- 
sentatives it  has  given  advice  and  guidance  to  those  com- 
munities contemplating  the  formation  of  a  company.  In 
conjunction  with  representatives  of  the  farmers*  state 
grain  dealers'  associations  it  has  elaborated  a  set  of  by- 
laws, the  adoption  of  which  these  associations  urge  upon 
farmers  wishing  to  organize  a  company."  It  has  likewise 
perfected  a  simplified  accounting  system,^^  which  many 
companies  have  adopted.  In  a  similar  manner  the  State 
departments  of  agriculture  through  their  various  branches 
have  given  assistance  to  the  movement. ^'^ 


5^  Bassett,  Moomaw,  and  Kerr,  Opus  cit.  p.  210. 

57  This  set  of  by-laws  may  be  found  in  Mehl  and  Jesness,  Opus  cit. 

58  L.  D.  Weld,  Opus  cit.  p.  11;  Erdmann,  Opus  cit.  152. 

5^  See  Jesness  and  Kerr,  Opus  cit.  pp.  59-60.  See  also  list  of  publica- 
tions issued  by  the  U.  S.  and  State  Departments,  as  quoted  at  end  of 
treatise. 


CHAPTER  V 

RESULTS     ACHIEVED     THROUGH     COOPERATIVE 
GRAIN  MARKETING 

The  grain  growers  of  the  North  Central  States  evidently 
would  not  have  entered  upon  marketing  their  grain  co- 
operatively if  the  hope  of  economic  gain  had  not  prompted 
them  to  do  so.  The  question,  therefore,  at  once  presents 
itself:  How  far  has  their  hope  been  realized?  What 
have  been  the  benefits,  if  any,  accruing  to  them  as  a  result 
of  engaging  in  this  form  of  enterprise?  While  upon  the 
answer  to  this  inquiry  does  not  necessarily  depend  the 
verdict  as  to  the  expediency  of  cooperative  grain  market- 
ing, nevertheless,  if  the  growers  through  marketing  their 
grain  cooperatively  have  not  secured  for  themselves  eco- 
nomic gains  commensurate  with  the  efforts  and  sacrifices  in- 
volved, then  cooperative  grain  marketing  is  either  unfeasi- 
ble or  some  essential  factor  of  success  has  been  overlooked 
in  its  application. 

The  results  achieved,  however,  are  such  as  to  warrant 
the  conclusion  that  cooperative  grain  marketing  has  been 
successfully  conducted.  In  most  of  the  country  places 
where  cooperative  elevator  companies  have  been  estab- 
lished, they  have  been  most  important  factors  in  maintain- 
ing competitive  conditions  in  the  buying  of  grain  and  even 
in  places  where  no  such  companies  exist,  they  have  had 
an  appreciable  influence  on  the  price  paid  for  grain  through 
what  is  known  as  potential  competition.  While  being 
strong  competitive  factors,  they  have  also  been  able  to 
return  dividends  to  their  members  or  patrons,  which  com- 
pare favorably  with  those  realized  by  other  types  of  ele- 
vator concerns.  But  apart  from  the  benefits  of  an  economic 
kind,  the  cooperative  companies  have  been  the  means  of 
raising  the  social  and  cultural  status  of  the  communities 
in  which  they  have  been  established.  To  review  in  de- 
tail these  results,  namely,  the  economic,  the  educational 
and  the  social,  is  the  scope  of  the  present  chapter. 

87 


88  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

The  fundamental  reason  inducing  the  grain  growers  to 
organize  cooperative  marketing  associations  during  the 
period  between  1895  and  1905,  was  the  conviction  that  the 
price  paid  for  grain  at  country  stations  was  not  determined 
by  the  free  play  of  demand  and  supply,  and  that  conse- 
quently they  were  not  getting  the  price  their  grain  was 
worth.  But  was  this  evil  situation  remedied  through  co- 
operative marketing?  Did  the  elevator  companies  of  that 
period  succeed  in  restoring  competitive  conditions  in  those 
places  where  they  were  established,  and  if  so,  in  how  far 
was  the  price  of  grain  increased  as  a  consequence? 

There  is  no  doubt  that  the  cooperatives,  especially  those 
operating  under  the  "penalty  clause,"  set  a  level  of  prices 
which  the  line  companies  and  independent  dealers  found  it 
difficult  to  meet.  This  was  admitted  by  representatives 
of  the  line  companies  in  the  investigation  conducted  by  the 
Interstate  Commerce  Commission  in  1906.  Mr.  Marcy,^ 
referring  to  the  competitive  character  of  those  companies 
operating  under  the  penalty  clause,  said:  "It  is  mighty 
hard  competition  to  go  up  against.  Whenever  I  hear  of  a 
farmers'  elevator  starting  in,  I  always  try  to  sell  them 
our  elevator."  ^  This  is  a  plain  recognition  on  the  part  of  a 
representative  of  a  large  line  elevator  company  that  the 
competition  offered  by  the  cooperatives  was  of  a  keen  char- 
acter. Mr.  Wells,  then  secretary  of  the  Iowa  Grain  Dealers 
Association,  in  referring  to  those  companies  with  a  penalty 
clause,  offered  similar  testimony.  "The  consequence"  of 
the  operation  of  the  penalty  clause  "is  that  there  is  no  mar- 
gin of  profit  maintained  by  which  to  pay  expenses,  and 
the  price  is  established  with  which  the  grain  dealer  must 
compete,  and,  in  fact,  he  must  pay  more,  because  he  is 
placed  at  a  disadvantage,  and  the  consequence  is  he  cannot 
secure  profits  to  pay  his  expenses."  ^ 

This  testimony  would,  therefore,  appear  to  indicate  that 
the  companies  operating  under  the  penalty  clause,  set  a 


1  He  was  the  business  manager  of  the  Neola  Elevator  Company,  which 
owned  a  large  number  of  elevators  in  Iowa,  Nebraska,  and  South  Dakota. 
^Sen.  Doc.  No.  278,  59th  Cong.  2d  sess.,  p.  175. 
3  Opus  cit.  p.  678. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING    89 

level  of  prices  for  their  competitiors  which  the  latter  found 
it  difficult  to  maintain.  And  apparently  most  of  the  com^ 
panies  operated  under  this  clause  toward  the  beginning 
of  1904.  But  why  should  it  be  precisely  the  penalty  clause 
that  was  producing  this  effect?  As  long  as  the  line  com- 
panies and  independent  dealers  did  not  attempt  to  with- 
draw patronage  from  the  companies  collecting  penalties, 
so  long  they  evidently  were  not  compelled  to  pay  higher 
prices.  If  the  line  companies  and  independent  dealers  were 
forced  to  pay  higher  prices  than  the  cooperatives,  the  ex- 
planation is  very  probably  to  be  sought  in  this,  that  the 
cooperatives  individually  handled  a  considerably  larger 
volume  of  grain  annually  than  did  the  former.  Upon  this 
supposition  it  is  explainable  that  the  companies  enforcing 
the  penalty  clause,  compelled  the  other  dealers  to  pay 
higher  prices  for  grain  than  they  did  themselves.  If  the 
cooperatives  handled  considerably  more  grain,  their  costs 
of  operation  per  bushel  were  correspondingly  decreased. 
On  the  other  hand,  the  line  companies  and  independent 
dealers,  with  greater  costs  of  operation  per  bushel  because 
of  the  lesser  volume  of  grain  that  they  handled  individu- 
ally, were  compelled  to  raise  the  price  above  that  paid  by 
the  cooperatives,  if  they  wished  to  withdraw  patronage 
from  the  latter.  This  excess  of  price  had  to  be  equal  at 
least  to  the  rate  of  assessment,  or  the  penalty,  prevailing 
among  the  cooperatives.  Otherwise  their  members  would 
have  no  incentive  to  haul  their  grain  to  a  competing  con- 
cern.* Under  these  conditions,  the  line  companies  and  in- 
dependent dealers  were  at  a  disadvantage  in  bargaining  for 
grain.  Fundamentally,  however,  it  was  not  the  penalty 
clause,  it  would  seem,  but  the  fact  that  the  cooperatives 
handled  a  larger  volume  of  grain  than  their  competitors 
that  compelled  the  latter  to  pay  higher  prices  than  the  for- 


*  If  the  cooperative  company  paid  $1.00  per  bushel  for  grain  and  if  the 
rate  of  assessment  was  two  cents  per  bushel  for  every  bushel  marketed  with 
a  competing  concern,  the  competitor  of  the  cooperative  company  would 
have  to  pay  above  $1.02  per  bushel  before  he  could  hope  to  withdraw 
patronage  from  the  cooperative  company.  Even  then  the  members  might 
not  be  inclined  to  sell  to  a  competitor  if  they  had  prospects  of  realizing 
dividends  through  their  trade  with  their  own  company. 


90  THE   COOPERATIVE   ELEVATOR    MOVEMENT 

mer.  This  view  finds  direct  confirmation  from  the  testi- 
mony of  Mr.  McDougal,'^  who  speaks  of  the  cooperatives 
in  general,  whether  operating  under  the  penalty  clause  or 
not:  "The  farmers'  elevator  is  very  hard  competition  for 
the  reason  that  its  membership  includes  virtually  all  of  the 
farmers  that  ship  regularly  through  that  station,  and  they 
naturally  monopolize  their  own  firm."  ^  Here  the  cause 
for  the  severity  of  the  competition  of  the  cooperatives  is 
not  ascribed  to  the  penalty  clause,  but  to  the  fact  that  most 
of  the  farmers  of  those  communities  having  a  cooperative 
elevator  company,  contributed  their  grain  to  it  instead 
of  to  rival  concerns. 

Assuming  then  that  competition  was  as  a  rule  consider- 
ably increased  at  a  country  station  as  a  result  of 
establishing  a  cooperative  company,  what  increase  in  price 
did  this  heightened  competition  effect?  Mr.  Stickney,^ 
when  questioned  during  the  investigation  of  the  Interstate 
Commerce  Commission  in  1906,  as  to  what  influence  the 
140  then  existing  companies  in  Iowa  had  exercised  upon 
the  market  at  points  where  they  were  situated,  replied: 
"The  only  thing  I  know  is  what  they  have  told  me — the 
stockholders  and  directors  of  these  different  organizations. 
I  think  I  have  been  at  every  station  in  Iowa  where  they  have 
a  cooperative  grain  company  and  they  have  agreed  that 
their  organization  has  raised  the  price  of  grain  at  each 
station  all  the  way  from  three  to  six  cents  a  bushel.  *  *  * 
I  have  never  been  at  one  of  these  places  where  they  have 
placed  the  advance  at  less  than  three  cents — ^very  often 
it  is  six  cents  a  bushel."  ^  When  further  questioned  as  to 
whether  he  meant  that  there  was  more  paid  at  those  towns 
than  at  other  points  where  there  was  no  cooperative  ele- 


^  Superintendent  of  the  elevators  owned  by  the  Neola  Grain  Company  in 
Iowa. 

0  Sen.  Doc.  Loc.  cit.  p.  710. 

^  Mr.  Stickney  was  solicitor  at  the  time  for  the  grain  commission  firm, 
Lowell,  Hoit  &  Co.,  one  of  the  two  firms  in  Chicago  that  did  not  refuse 
to  accept  consignments  of  grain  from  the  cooperatives  at  the  time  when  a 
boycott  was  attempted  upon  those  firms  accepting  such  grain.  Mr.  Stick- 
ney's  attitude  toward  the  cooperatives  is  a  very  friendly  one.  He  personally 
assisted  in  organizing  a  number  of  these  companies  in  Iowa  at  the  time. 

*  Sen.  Doc.  Loc.  cit.  p.  17. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING    91 

vator,  he  replied  that  this  was  the  way  in  which  the  stock- 
holders and  directors  arrived  at  their  conclusion;  they 
would  compare  the  price  paid  at  their  town  with  that 
paid  at  a  town  10,  20,  or  30  miles  distant.^  Similar  testi- 
mony was  offered  by  several  managers  of  cooperative  com- 
panies, in  testifying  before  the  same  commission.  Some 
stated  that  immediately  after  their  company  was  organized 
the  competitors  at  that  particular  country  station  raised 
the  price  from  two  to  four  cents  a  bushel.^*^  Others  testi- 
fied that  the  price  paid  by  competitors  in  comparison  with 
the  Chicago  market  price  was  three  to  five  cents  higher 
than  had  prevailed  before  the  cooperative  companies  had 
been  organized  at  these  country  stations.  ^^ 

These  are  of  course  only  estimates  and  at  that  the  esti- 
mates of  those  who  would  naturally  be  inclined  to  think 
that  the  cooperative  companies  were  of  great  benefit  to  the 
producers.  Nor  would  these  estimates  assure  us  that  the 
same  results  were  everywhere  obtained.  Even  were  it 
granted  that  immediately  upon  establishing  a  cooperative 
company,  the  price  was  increased  from  one  to  three  or  even 
to  six  cents  per  bushel,  it  does  not  necessarily  follow  that 
the  farmers  received  a  net  increase  equalling  that  amount. 
It  is  possible  that  the  line  companies  and  independent 
dealers  upon  raising  the  price,  compensated  themselves 
at  least  to  some  extent  by  underweighing,  undergrading, 
and  over-docking  the  grain.  The  cooperative  companies 
may  have  followed  the  same  policy.  There  is  no  evidence 
that  this  practice  was  resorted  to,  but  the  possibility  of  it 
shows  that  the  net  increase  in  price  may  have  been  con- 
siderably less  than  the  actual  price  quotations  of  the  testi- 
mony offered  above,  would  indicate.  In  short,  from  avail- 
able data,  it  is  impossible  to  determine  with  exactness  what 
net  increase  in  price  the  farmer  may  have  received  for  his 
grain  as  a  result  of  establishing  his  own  marketing  facili- 
ties.    The  fact,  however,  remains  that  pooling  and  price 


^Ibidem. 

10  Opvs  cit.  pp.  47,  495,  571,  706. 

11  Loc.  cit.  pp.  7,  732. 


$2  THE   COOPERATIVE  ELEVATOR   MOVEMENT 

agreements  were  widespread  among  the  line  companies 
and  the  independent  dealers  during  the  period  under  con- 
sideration, and  "some  grain  men,  at  least,  have  admitted 
that  in  the  early  days  many  of  the  older  types  of  elevators 
exacted  altogether  too  large  a  margin."  ^^  These  considera- 
tions together  with  the  estimates  offered  above,  in  turn 
lend  probability  to  the  view  that  the  result  of  establish- 
ing a  cooperative  elevator  company  was  frequently  to  raise 
the  price  to  the  extent  of  yielding  a  net  increase  of  profit 
from  one  to  three  cents  per  bushel  for  all  the  grain  growers 
of  the  community." 

The  cooperative  elevator  companies  have  not  ceased  to 
be  important  factors  in  maintaining  competitive  conditions 
in  country  grain  marketing.  Of  this  there  can  be  scarcely 
anly  doubt  in  view  of  the  recent  extensive  survey  of  the 
grain  trade  by  the  Federal  Trade  Commission.  This  sur- 
vey **revealed  numerous  indications  that  the  mill,  and  es- 
pecially the  farmers'  or  cooperative  elevators  are  the  most 
serious  factors  in  country  competition.  Both  of  these  types 
frequently  embark  upon  policies  in  prices,  grades,  dock- 
age, etc.,  that  have  little  or  no  reference  to  the  policies 
of  their  independent  or  commercial  line  competitors."  ^* 

These  words  just  quoted  apply  to  the  cooperative  grain 
companies  of  North  Dakota,  South  Dakota,  and  Minne- 
sota.^** The  information  secured  from  the  other  North 
Central  States  was  "much  less  complete  and  significant," 
nor  could  information  to  this  effect  have  been  obtained 


^2  Report  of  the  Federal  Trade  Commission  on  the  Grain  Trade,  Vol.  I, 
Country  Grain  Marketing,  p.  86. 

13  It  is  quite  probable  that  the  farmers  who  were  not  members  of  the  co- 
operative companies,  were  frequently  greater  beneficiaries  than  the  members 
themselves.  Apparently  competition  became  so  keen  between  the  co- 
operatives and  their  competitors  that  profits  were  cut  down  to  a  minimum. 
Under  these  conditions  "making  profits  was  subordinated  to  the  more  vital 
problem  of  maintaining  solvency."  To  this  hazard  the  non-members  were 
not  subject,  and  besides  they  were  free  in  shifting  their  patronage  from  one 
to  the  other  as  either  the  cooperative  company  or  its  competitors  paid 
higher  prices. 

1*  Opus  cit.  p.  260.  The  Report  devotes  about  seventy-five  pages  to  a 
description  of  competitive  .conditions  in  country  grain  buying. 

^^Loc.  cit.  p.  243. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING    93 

"without  a  large  expenditure  of  time  and  money  and  with 
no  certainty  that  the  results  would  justify  such  expendi- 
ture.'* ^^  There  may  be  a  possibility,  therefore,  of  course 
that  the  cooperative  elevator  companies  of  the  other  North 
Central  States  are  not  such  important  factors  as  those 
in  the  States  already  mentioned.  There  is,  however,  no 
positive  evidence  to  support  this  view.  The  reasons  ad- 
vanced by  the  commission  for  the  severity  of  cooperative 
competition  were:  the  more  or  less  unfriendly  attitude  of 
the  farmers  and  their  organizations  toward  the  commercial 
line  companies,  their  friendly  attitude  toward  their  own 
companies,  and  the  inducement  of  stock  and  patronage 
dividends."  These  same  reasons  are  operative  in  all  of 
the  North  Central  States.  Furthermore,  it  must  be  re- 
membered in  as  far  as  the  commission  did  receive  informa- 
tion for  the  States  not  specifically  mentioned  above,  it  was 
to  the  effect  that  a  considerable  degree  of  competition  pre- 
vailed at  most  country  stations  and  that  the  cooperatives 
were  the  most  serious  factors  in  its  maintenance.^^ 

The  influence  of  the  cooperative  elevator  companies  as 
competitive  factors  is  not  restricted  to  the  communities  in 
which  they  are  located.  Even  in  places  where  no  com- 
pany has  been  organized  they  are  exerting  an  appreciable 
influence  in  maintaining  at  a  competitive  level  the  price 
paid  for  grain.  This  is  corollary  which  may  be  deduced 
directly  from  the  status  and  the  trend  of  the  cooperative 
movement.  The  growth  in  the  number  of  elevator  com- 
panies owned  and  operated  by  the  producers  themselves 
is  an  outstanding  development  in  the  marketing  of  grain 
within  recent  years.  This  growth  is  evident  indication 
that  the  farmers  are  more  and  more  looking  toward  the 
formation  of  cooperative  marketing  associations  as  means 
of  insuring  greater  net  returns  for  their  grain.  This  at- 
titude reacts  upon  the  established  grain  dealers  in  the 


i«  Loc.  cit.  p.  244. 
i^Loc.  cit.  pp.  264-266. 
18  Loc.  cit,  pp.  18,  244. 


94  THE   COOPERATIVE   ELEVATOR    MOVEMENT 

form  of  potential  competition.  They  realize  that  if  they 
offer  prices  which  appear  unfair,  dissatisfaction  will  re- 
sult among  the  grain  growers  of  that  locality.  The  matter 
will  very  likely  come  under  investigation,  and  if  the  sus- 
picion of  unfair  prices  is  found  to  rest  on  fact,  the  probable 
outcome  will  be  that  a  cooperative  elevator  company  will 
be  organized  as  a  means  of  redress.  Hence,  the  fear  of 
competition  through  the  establishing  of  new  companies, 
will  frequently  deter  grain  dealers  from  exacting  too  wide  a 
margin  of  profit  on  grain.^^ 

With  the  growth  of  the  cooperative  elevator  movement, 
competition  has  likewise  been  restored  among  the  commis- 
sion firms  in  the  terminal  markets.  During  the  early  days 
of  the  movement,  commission  firms,  intimidated  by  the 
State  Grain  Dealers  Associations,  hesitated  to  accept  con- 
signments of  grain  from  the  cooperatives  for  fear  that 
they  should  be  boycotted  by  other  dealers.  Today  these 
firms  are  vying  with  one  another  in  soliciting  their  trade. 
The  American  Cooperative  Journal  as  also  the  Manager 
from  time  to  time  publish  lists  of  commission  firms  solicit- 
ing grain  from  the  cooperative  companies..  In  these  lists 
may  be  found  commission  firms  from  Buffalo,  Chicago, 
Duluth,  Kansas  City,  Milwaukee,  Minneapolis,  Omaha, 
Peoria,  St.  Louis,  Toledo,  Wichita,  etc.  From  this  enumer- 
ation of  cities,  it  is  readily  seen  that  these  companies  have 
plentiful  facility  for  consigning  their  grain  to  advantage- 
ous market  centers.  To  the  fact  that  commission  firms 
are  willing  and  anxious  to  accept  consignments  from  all 
responsible  grain  dealers,  present  competitive  conditions 
in  country  grain  buying  must  in  no  small  measure  be  at- 
tributed. No  local  buyer  need  enter  agreements  of  any 
kind  for  fear  of  being  unable  to  find  a  market  for  his  grain 
in  the  terminal  cities,  as  was  the  case  when  the  Stale  Grain 
Dealers  Associations  through  their  affiliated  commission 


^*  Cf.  Opus  cit.  p.  248.  Speaking  of  existing  elevators  refraining  from 
exacting  too  wide  a  margin  because  of  the  fear  of  potential  competition  be- 
coming actual,  the  Report  says :  "Especially  is  this  true  in  the  event  that  a 
farmers'  house  is  organized,  for  such  a  house  by  virtue  of  a  large  number 
of  farmer  stockholders  or  patronage  dividends,  or  both,  will  almost  in- 
evitably cut  heavily  into  the  receipts  of  the  other  houses." 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING        95 

firms  boycotted   the  country  grain   dealers   who   refused 
to  comply  with  their  demands. 

While  it  is  true  that  the  cooperative  elevator  companies 
are  in  general  important  factors  in  maintaining  competi- 
tion in  country  grain  buying,  even  in  places  where  no  such 
companies  exist,  this  statement  needs  important  qualifica- 
tion. The  investigation  of  the  Federal  Trade  Commission 
revealed  that  there  are  "frequently  stations  at  which  com- 
petition is  either  insignificant  or  non-existent  on  account 
of  local  or  other  agreements  among  purchasing  elevators 
or  other  factors."  ^^  To  these  agreements  the  cooperative 
companies  are  frequently  partners,  "though  they  appear 
less  inclined  than  the  others  to  enter  such  agreements."  ^^ 

Since  this  chapter  deals  with  the  cooperative  elevator 
movement  in  its  results  and  benefits,  the  question  naturally 
suggests  itself  as  to  how  far  this  practice  of  entering  price 
agreements  with  other  dealers  is  beneficial  or  detrimental, 
both  to  the  company  resorting  to  this  practice  and  to  the 
other  grain  growers  of  the  community.  To  gauge  accurately 
these  results  is  no  easy  task.  It  may,  however,  be  presup- 
posed that  such  practice  redounds  to  the  economic  advant- 
age of  the  company  as  a  collective  body.  It  is,  indeed,  easy 
to  conceive  of  a  situation  in  which  it  would  be  unwise 
for  a  company  to  pursue  such  a  policy.  The  feasibility  of 
it,  in  short,  depends  upon  circumstances,^^^  ^nd  it  is  not 
to  be  expected  that  a  company  resorts  to  such  practice  out 
of  philanthropic  motives.  Let  it  be  presupposed  then,  that 
the  practice  under  the  given  conditions  is  economically  ad- 
vantageous to  the  company  and  furthermore  that  the 
profits  accruing  as  a  result  are  not  taken  fraudulently  by 
a  particular  group,  but  are  distributed  to  all  the  members 
or  patrons  upon  the  basis  provided  for  in  the  by-laws.    Do 


2«  Opus  cit.  p.  244. 

21  Opus  cit.  p.  245. 

22  The  mere  fact  of  a  company's  paying  less  than  competitive  prices,  other 
things  being  equal,  need  not  be  detrimental  to  the  company  as  a  collective 
body.  The  less  it  pays  for  grain  the  more  profits  will  it  be  able  to  dis- 
tribute at  the  end  of  the  year  in  the  form  of  dividends  on  stock  or 
patronage,  or  both. 


96  THE   COOPERATIVE  ELEVATOR   MOVEMENT 

all  the  members  in  this  instance  share  equally  in  such 
profits  ? 

An  important  distinction  must  here  be  drawn  between 
those  companies  that  distribute  their  profits  on  the  basis 
of  dividends  on  stock  and  those  that  distribute  them  on 
the  basis  of  patronage.  It  may  be  said  in  general  that 
in  the  latter  type  all  the  members  will  share  equally  in 
the  profits  arising  out  of  price  agreements  because  the 
profits  stand  in  direct  proportion  to  the  amount  of  grain 
that  each  member  contributes  to  the  company.  The  indi- 
vidual member  will  generally  recoup  in  the  form  of  profits, 
the  losses  he  may  have  sustained  in  the  form  of  lower 
than  competitive  prices.^^  The  condition  of  the  members  is 
different  in  those  companies  which  distribute  their  profits 
on  the  basis  of  capital  stock.  Also  in  these  companies  if 
each  member  held  stock  in  direct  proportion  to  the  amount 
of  grain  he  markets  with  the  company,  all  would  share 
equally  in  the  profits  arising  out  of  price  agreements  be- 
cause in  that  instance  the  condition  of  each  member  would 
be  identical  with  that  of  the  members  of  a  company  in 
which  profits  are  pro-rated  on  the  basis  of  patronage.  But 
the  exact  proportion  between  the  amount  of  stock  held 
and  the  amount  of  grain  contributed,  is  without  doubt 
scarcely  ever  realized.  And  in  these  companies,  the  mem- 
ber whose  amount  of  stock  invested  is  less  proportionally 
than  the  amount  of  grain  he  contributes,  not  only  does 
not  share  equally  in  the  profits  arising  out  of  price  agree- 
ments but  suffers  a  financial  loss,  the  extent  of  which  is 
measured  by  the  excess  of  his  patronage  over  his  invested 
stock.  He,  indeed,  receives  the  same  rate  of  dividend  as 
all  the  other  members,  but  his  total  profits  will  be  less  than 
if  he  had  received  the  competitive  price  for  his  grain. 

That  the  other  grain  growers  of  the  community  who 
are  not  members  of  the  company,  suffer  financial  loss  on 
account  of  price  agreements,  is  evident,  provided  there  are 
no  dealers  at  that  particular  country  station  who  offer 
competitive  prices.    These  farmers  are  no  beneficiaries  of 


23  This  statement  rests  on  the  assumption  that  the  terms  of  the  price 
agreement  bear  equally  on  the  different  kinds  and  quality  of  grain. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING        97 

dividends  on  stock  or  patronage.  The  price  they  receive 
for  their  grain,  whether  this  be  the  competitive  price 
or  a  lower  one,  determines  the  total  of  their  profits. 

The  general  conclusion  then  that  may  be  drawn  is  this: 
Price  agreements  on  the  part  of  cooperative  companies 
with  other  dealers  need  not  result  in  financial  loss  to  the 
individual  members  although  it  is  likely  that  this  will  oc- 
cur in  those  companies  in  which  profits  are  distributed 
on  stock  because  of  the  almost  inevitable  disparity  be- 
tween the  amount  of  stock  owned  and  the  amount  of  grain 
contributed  by  each  member;  but  in  every  case  the  farm- 
ers of  the  community  who  are  not  members  or  patrons 
of  the  company,  suffer  financial  loss  on  account  of  price 
agreements  because  the  price  they  receive  for  grain  deter- 
mines the  total  of  their  profits. 

Having  considered  the  cooperative  elevator  companies 
in  their  competitive  aspect,  it  is  now  in  order  to  inquire 
whether  they  have  been  successful  as  business  enterprises. 
To  be  worth  while  from  an  economic  point  of  view  they 
must  be  able  not  only  to  pay  a  price  for  grain  prevailing 
under  conditions  of  fair  competition,  but  besides  providing 
a  fund  for  depreciation  and  expenses,  they  must  be  able  to 
return  the  current  rate  of  interest  on  the  investment 
and  provide  such  other  gains  as  will  compensate  the  mem- 
bers for  the  efforts  and  sacrifices  entailed.  If  the  com- 
pany cannot  do  this,  then  why  assume  the  financial  hazards 
of  operating  an  elevator. 

The  rapid  increase  in  the  number  of  cooperative  elevator 
companies  within  recent  years,  and  on  the  other  hand, 
the  relative  decline  in  the  number  of  elevators  owned  by 
the  line  companies  and  the  independent  dealers,  would  lead 
one  to  think  that  the  former  have  certain  advantages  over 
their  competitors.  By  analyzing  the  costs  of  operating  a 
country  grain  elevator  these  advantages,  if  any  exist, 
should  appear. 

There  are  many  expense  items  in  operating  a  grain 
elevator  which  remain  fairly  constant  regardless  of  the 
amount  of  grain  handled.     Such  items  are  the  salary  of 


98  TPIE   COOPERATIVE   ELEVATOR   MOVEMENT 

the  manager,  interest  on  the  investment,  insurance,  de- 
preciation and  taxes.  The  greater,  therefore,  in  general 
the  amount  of  grain  handled,  the  lower  the  costs  of  opera- 
tion per  unit.  Estimates  obtained  by  the  Office  of  Markets 
and  Rural  Organization  in  1914,  showed  that  the  cost  of 
operating  varied  from  one  to  five  cents  per  bushel,  the  aver- 
age cost  being  1.98  cents  for  houses  handling  less  than  200,- 
000  bushels;  1.28  cents  for  houses  handling  more  than 
200,000,  the  general  average  being  1.85  cents.=^*  Professor 
Weld,  in  his  survey  of  cooperative  elevators  in  Minnesota, 
computed  the  average  cost  of  operating  per  bushel  for 
different  groups  of  elevators  according  to  the  amount  of 
grain  handled  during  the  years  1912-13,  with  the  following 
results:  2*^ 

Number  of  bushels  Cost  of  handling 

handled  per  bushel  (cents) 

50,000—100,000 2.5 

100,000— -150,000 1.9 

150,000—200,000 1.5 

200,000—300,000 1.3 

These  figures  show  that  the  general  economic  advantage 
which  one  elevator  may  have  over  another,  arises  from 
the  fact  that  it  handles  a  larger  amount  of  grain  than 
do  its  competitors.  It,  therefore,  remains  to  compare  the 
amount  of  grain  handled  by  the  cooperative  elevator  com- 
panies with  that  handled  by  their  competitors. 

The  recent  investigation  of  the  Federal  Trade  Com- 
mission establishes  beyond  all  doubt  that  the  cooperative 
companies  on  the  average  handle  individually  a  far  greater 
amount  of  grain  annually  than  the  individual  elevators 
of  the  commercial  line  companies  or  those  of  the  inde- 
pendent dealers.  According  to  the  results  of  this  survey, 
the  individual  elevators  of  the  commercial  line  companies 
handle  on  the  average  77,250  bushels  of  grain  annually; 


24  Livingston  ^nd  Seeds,  Marketing  Grain  at  Countrv  Points,  in  Bulletin 
558,  p.  34,  U.  S.  Dept.  of  Agric,  1917. 

2«  Opus  cit.  p.  10.  These  figures  were  compiled  from  elevators  handling 
grain  exclusively. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING        99 

those  of  the  independent  dealers,  102,934;  the  individual 
cooperative  companies,  152,792;  and  the  individual  eleva- 
tors of  the  cooperative  line  companies,  136,825.^^  Hence,  the 
individual  cooperative  companies  handle  on  the  average 
almost  twice  the  volume  of  grain  handled  by  the  individual 
elevators  of  the  commercial  line  companies,  and  almost 
one-third  more  than  those  of  the  independent  dealers.  The 
volume  of  grain  handled  by  the  individual  elevators  of  the 
cooperative  line  elevator  companies  is,  indeed,  consider- 
ably less,  but  also  they  constitute  a  very  small  percentage 
of  the  total  number  of  cooperative  companies. 

From  the  figures  in  the  preceding  paragraph  it  must, 
however,  not  be  inferred  that  all  of  the  cooperative  com- 
panies, or  even  the  majority  of  them  operate  on  a  closer 
margin  of  expense  and  therefore  secure  greater  net  profits 
than  their  competitors.  It  is  quite  possible,  at  least 
theoretically,  that  a  minority  of  the  cooperative  companies 
may  be  transacting  such  a  tremendously  large  volume  of 
business  as  to  raise  the  general  average  above  that  tran- 
sacted by  their  competitors.  In  like  manner  it  is  quite 
possible  that  the  majority  of  them  may  be  transacting  a 
volume  of  business  considerably  below  the  general  average 
established  for  the  cooperatives  or  also  for  the  other  types 
of  elevator  concerns. 

The  reasons  adduced  by  the  commission  in  explanation 
of  the  variations  in  the  volume  of  business  among  the 
different  types  of  elevators,  leads,  however,  to  the  view 
that  the  general  averages  cited  are  representative  of  the 
comparative  volume  of  grain  handled  by  the  cooperatives 
and  their  competitors  at  most  of  the  country  stations  where 
the  former  are  established.  The  cause  of  "the  generally 
smaller  volume  of  business"  ^^  handled  by  the  commercial 
line  companies,  the  commission  ascribes  largely  to  "the 
more  or  less  hostile  attitude  of  the  producer  toward  the 
line  house,"  and  the  possible  conviction  on  the  part  of  the 
producer  that  he  will  receive  a  "fairer  deal"  from  a  local 


26  Opus  cit.  p.  117. 

^"^  Loc.  cit.  p.  118.    Italics  are  the  writer's. 


100      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

concern,  whose  manager  he  knows  more  intimately  than 
from  the  line  agent,  **of  whom  he  frequently  knows  little 
and  the  policy  of  whose  employer  he  is  inclined  to  dis- 
trust." ^^  On  the  other  hand,  the  reasons  advanced  why  the 
cooperatives  handle  a  considerably  larger  volume  of  grain, 
are  the  unfriendly  attitude  of  the  producer  toward  the 
commercial  line  company,  his  friendly  attitude  toward  the 
cooperative  elevators  and  the  cooperative  movement  in 
general,  and  the  expectation  of  dividends  on  stock  and 
patronage.-^  These  reasons  are  more  or  less  operative  at 
almost  every  place  where  a  cooperative  elevator  has  been 
organized.  The  very  fact  that  the  cooperative  company 
is  composed  of  producers,  places  it  in  an  advantageous 
position  for  securing  a  comparatively  large  volume  of 
business.  As  long  as  it  pays  prices  equal  to  those  of  its 
competitors,  the  members  will  find  it  preferable  to  trade 
with  their  own  concerns  because  of  the  expectation  of  divi- 
dends. Many  of  the  non-members  can  be  attracted  by  the 
provision  which  many  companies  have  inserted  in  their  by- 
laws whereby  they  grant  dividends  to  non-members  at 
one-half  the  rate  granted  to  the  members  themselves. 
Where  this  inducement  is  absent  the  non-member  may  be 
said  to  stand  at  the  margin  of  indifference.  The  cooper- 
ative company  has  as  much  chance  to  secure  his  trade  as 
any  of  the  competitors.  In  view  of  these  considerations 
the  conclusion  does  not  appear  unwarranted  that  at  most 
of  the  country  stations  where  such  companies  have  been 
established  they  handle  a  comparatively  much  larger 
volume  of  grain  than  do  their  competitors.  It  is  very  prob- 
ably this  fact  which  permits  the  cooperative  companies 
to  be  such  important  competitive  factors  in  country  grain 
buying  as  they  really  are.  In  how  far  their  competitive 
character  may  have  set  a  level  of  prices  higher  than  would 
have  prevailed  otherwise  it  is  impossible  to  determine. 

From  the  comparative  study  of  the  Federal  Trade  Com- 
mission in  regard  to  prices  actually  paid  for  grain  by  the 


28  Ibidem. 

29  Ibidem. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING     101 

different  types  of  elevators,  the  commission  arrived  at  the 
following  conclusions: 

"That  the  differences  in  the  buying  margins  between 
types  are  probably  not  great. 

"Some  doubt  may  be  expressed  that  on  the  whole  the 
cooperatives  pay  the  farmer  appreciably  more  for  his  grain 
than  do  the  other  types. 

"That  in  so  far  as  the  farmers  do  better  by  selling  to 
the  cooperative  or  farmers*  elevator,  it  is  due  probably  to 
the  returns  derived  by  the  customers  in  the  form  of  divi- 
dends on  patronage  or  stock  owned  rather  than  to  better 
prices  paid  the  farmer  at  the  time  the  grain  is  sold.*'  ^^ 

The  study  in  regard  to  grade,  dockage  and  weight,  was 
restricted  to  the  commercial  line  companies,  but  the  com- 
mission was  reasonably  assured  that  a  similar  study  for 
other  types  of  elevators,  would  show  greater  profits  or  less 
losses  for  their  customers  if  it  had  been  possible  to  obtain 
the  necessary  data  from  representative  groups  of  such 
houses.^^  From  this  extensive  survey,  therefore,  it  is  as- 
certained that  the  cooperatives  pay  at  least  equally  as  high 
prices  as  their  competitors  and  give  their  patrons  equally 
as  great  advantage  in  regard  to  grade,  dockage  and  weight. 

As  to  actual  profits  realized  by  the  cooperative  elevator 
companies,  recent  figures  are  available  from  two  surveys, 
the  one  conducted  by  the  University  of  Minnesota,  the 
other  by  the  Federal  Trade  Commission.  According  to  the 
computations  of  Black  and  Robotka,  who  conducted  a  sur- 
vey of  cooperative  grain  marketing  in  Minnesota  in  1918, 
227  companies  or  94  per  cent  of  a  total  of  241  reporting, 
made  profits  during  the  fiscal  year,  1917-18,  averaging 
$4,254.^2  Thirteen  companies  or  5  per  cent  of  the  total 
number,  had  losses  averaging  $1,236,  and  one  company 
reported  that  it  had  neither  profit  nor  loss.  The  average 
profits  of  all  the  companies  would,  therefore,  be  $3,941.^' 


30  Opus  cit.  p.  194. 

31  Loc.  cit.  pp.  197-206. 

32  Black  and  Robotka,  Opus  cit.  p.  26. 

33  Ibidem. 


102  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

If  this  general  average  of  profit  be  applied  to  the  4,442 
cooperative  elevator  companies  existing  in  the  North  Cen- 
tral States  at  the  beginning  of  1921,  their  total  profits 
during  the  fiscal  year  1919-20  equalled  $17,505,922.  Were 
this  total  equally  divided  among  the  409,062  members,  the 
average  profit  for  each  member  would  have  been  ?35.50. 

The  representative  character  of  the  Minnesota  survey 
as  a  general  criterion  of  the  profits  of  cooperative  elevator 
companies  may,  however,  be  questioned.  In  the  first  place, 
the  number  of  companies  reporting  is  small  in  comparison 
with  the  total  number  of  companies  in  the  North  Central 
States  at  the  beginning  of  1921.  Again,  the  companies  of 
Minnesota  handled  on  the  average  only  125,571  bushels  of 
grain  annually,  which  is  25,000  bushels  less  than  the  five 
year  average  arrived  at  by  the  Federal  Trade  Commission 
in  regard  to  the  volume  of  grain  handled  in  general  by 
the  cooperative  companies.  Furthermore,  the  market  was 
so  irregular  during  the  year  1917-18,  that  it  was  difl[icult 
to  determine  the  price  which  would  yield  a  safe  margin 
of  profit.  To  this  condition  Black  and  Robotka  ascribe 
the  fact  that  61  companies  did  not  have  sufficient  profits 
to  warrant  paying  dividends.^*  The  figures,  therefore,  are 
probably  conservative  when  adduced  as  reflecting  the  profits 
of  cooperative  elevator  companies  in  general. 

Because  of  the  variations  in  accounting  in  vogue  among 
the  cooperative  elevator  companies,  a  statement  of  thair 
profits  and  losses  does  not  always  afford  an  accurate  index 
of  their  financial  status.  While  most  of  the  companies  of 
Minnesota  included  both  dividends  on  stock  and  patronage 
as  profits,  the  number  of  companies  which  were  figuring 
dividends  on  stock  as  expenses  was  increasing.^^  Hence, 
the  total  net  profits  are  more  accurately  reflected  in  the 
dividends  distributed  and  in  the  sums  accumulated  as  re- 
serves and  undivided  surplus. 


34  Opus  cit.  p.  26. 
*^  Loc.  cit.  p.  26. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING     103 

The  360  companies  ^"^  of  Minnesota  during  the  fiscal  year, 
1917-18,  distributed  about  $630,000  in  dividends,  and  in  ad- 
dition accumulated  ?700,000  as  reserve  funds  and  undi- 
vided surplus.  Upon  this  basis,  the  4,442  companies  of 
the  North  Central  States  during  the  fiscal  year  1919-20, 
distributed  $7,773,777  in  dividends  and  accumulated  $8,- 
359,444  as  reserve  funds  and  undivided  surplus. 

The  dividends  distributed,  are  returned  to  the  stock- 
holders as  dividends  on  capital  stock,  on  patronage,  or  on 
both.  Forty-five  per  cent  of  the  241  companies  in  Minne- 
sota, reporting  in  regard  to  these  items,  paid  dividends 
on  stock  only,  and  twenty-three  per  cent  of  them  paid  divi- 
dends on  both  stock  and  patronage.  Three  companies  paid 
patronage  dividends  only.  The  accompanying  table  shows 
the  dividend  rates  on  capital  stock  as  reported  by  233 
companies. 

Rate  of  dividend  Number  of  elevators, 

(per  cent)  reporting  ^"^ 

0 75 

2 1 

4 2 

6 12 

7 10 

8 36 

9 1 

10 42 

12 2 

15 8 

(per  cent)  reporting 

20 15 

21 2 

22 7 

25 1 

30 5 

40 10 

50 1 

54 4 

100 1 


3«  This  was  the  total  number  of  companies  in  the  State  at  the  time.     Not 
all  of  the  companies  responded  to  the  various  questions  sent  to  them. 
^"^  Of  the  75  companies  reporting  no  dividends,  13  made  no  profits. 


104      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

From  this  table  it  is  seen  that  132  companies  out  of  233 
reporting  in  regard  to  dividends  on  stock,  paid  8  per  cent, 
and  more.  But  it  is  important  to  bear  in  mind  that  com- 
panies paying  less  than  8  per  cent  may  be  equally  as  pros- 
perous as  those  that  pay  this  rate  or  a  higher  one.  When 
companies  pay  exceptionally  high  dividend  rates  on  stock, 
in  all  probability  they  are  not  paying  dividends  on  patron- 
age, and  so  are  not  living  up  to  truly  cooperative  principles. 
Again,  companies  with  small  dividend  rates  may  be  paying 
higher  prices  for  grain  or  they  may  grade  it  higher,  charge 
less  dockage,  and  give  better  weight.  A  company,  in  short, 
may  run  on  a  no-profit  basis,  and  still  be  of  as  much  eco- 
nomic benefit  to  the  producers  as  are  the  companies  in 
which  the  rates  of  dividends  are  high. 

Another  survey  dealing  with  the  profits  realized  by 
the  cooperative  elevator  companies,  is  that  of  the  Federal 
Trade  Commission,  whose  Report  on  the  Profits  of  Country 
and  Terminal  Grain  Elevators  was  made  public  on  June 
13,  1921.^^  This  Report  presents  a  comparative  statement 
of  the  profits  made  by  the  principal  types  of  country  ele- 
vators during  the  crop  years  1915-16,  1916-17,  1919-20. 
In  the  accompanying  Tables  I  and  II  are  charted  the  results 
of  this  investigation  in  regard  to  the  rate  of  return  on  the 
investment  for  the  principal  types  of  country  elevators  dur- 
ing the  three  years  indicated.  As  very  much  of  the  business 
of  country  elevators  is  handled  on  borrowed  capital,  the 
rate  of  return  on  the  investment  will  be  considerably  higher 
or  lower  accordingly  as  borrowed  funds  are  either  included 
or  excluded  from  the  computations.  For  this  reason  it  was 
thought  best  to  construct  two  tables,  the  one  indicating 
the  percentage  of  income  to  invested  capital,  borrowed 
funds  included,  the  other  presenting  the  percentage  with 
borrowed  funds  excluded. 


88  The  Report  is  printed  as  Sen.  Doc.  No.  40,  67th  Cong.  1st  sess.  This 
is  a  preh'minary  report,  issued  because  of  the  measures  dealing  with  the 
grain  trade  that  were  before  Congress  at  the  time. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING     105 


Table  I — Showing  percentage  oj  income  to  invested  capital  for  country  grain 
elevators,  borrowed  funds  included}^ 


Type  of  Elevator 


1915-16 


Independent 

Cooperatives  (pat.  div.).  .  . 
Cooperatives  (no  pat.  div.) 
Line  companies 


17.85 
31.78 
14.59 
11.65 


1916-17 


24.20 
38.97 
27.50 
15.82 


1919-20 


18.93 
26.32 
21.22 
12.86 


Table  II — Showing  percentage  of  income  to  invested  capital  fof 
elevators,  borrowed  funds  excluded. 

'  country  grain 

Type  of  Elevator 

1915-16 

1916-17 

1919-20 

Independent 

21.69 
49.21 
17.10 

15.57 

29.27 
58.13 
26.29 
20.80 

22.73 

Cooperatives  (pat.  div.) .  . 

39.03 

Cooperatives  (no  pat.  div.) 

Line  companies 

26.26 
18.15 

From  these  tables  it  is  seen  that  the  cooperatives  paying 
patronage  dividends  have  each  year  easily  the  highest  rate 
of  return  on  the  investment,  whether  borrowed  funds  are 
either  included  or  excluded.  The  cooperatives  not  paying 
patronage  dividends  occupy  a  much  less  favorable  posi- 
tion. Their  rate  may  be  said  to  be  approximately  inter- 
mediate between  that  of  the  independent  dealers  and  that 
of  the  commercial  line  companies.  It  would  be  hazardous 
to  offer  an  explanation  of  the  variations  of  return  on  the 
basis  of  the  data  given  in  the  Re/port.  The  explanation 
will  no  doubt  be  given  in  the  more  detailed  report  to  follow. 
However,  there  are  several  advantages  connected  with  the 
^cooperative  form  of  organization,  which  are  fundamental 
and  which  probably  account  in  a  large  measure  for  the 


^^  The  cooperatives  were  divided  into  two  classes,  those  paying  patronage 
dividends  and  those  paying  dividends  only  on  capital  stock. 


106 


THE   COOPERATIVE   ELEVATOR   MOVEMENT 


high  rates  of  return  reported  by  the  cooperative  companies 
that  distribute  their  earnings  on  the  basis  of  patronage.^^* 
The  Report  of  the  Federal  Trade  Commission  also  gives 
figures  indicating  the  total  number  of  companies  reporting 
for  each  type  of  elevator  as  also  the  total  amount  of 
operating  profits  realized  by  the  companies  of  each  type. 
From  these  figures  it  is  possible  to  arrive  at  estimates 
which  should  be  fairly  accurate  averages  of  the  amount  of 
profit  realized  by  the  individual  companies  and  by  the  indi- 
vidual members.  To  indicate  these  averages  and  the 
method  of  arriving  at  them  is  the  purpose  of  Table  III. 

Table  III — Showing   the   average   operating   profit   of  individual   cooperative 
elevator  companies  and  the  members  thereof  .^^ 


Num- 

Average 

Average 

Total 

ber  of 

profit 

profit 

Year 

Type  of  Company 

operating 

com- 

per 

per 

profit*" 

panies 

com.*' 

mem.  ^ 

1915-16. 

Coop.  pay.  pat.  div 

$     537,511 

136 

$3,952 

$35.93 

Coop,  not  pay.  pat.  div. . . 

281,993 

132 

2,136 

19.41 

1916-17. 

Coop.  pay.  pat.  div 

1,372,702 

226 

6,073 

55.20 

Coop,  not  pay.  pat.  div.. . 

1,150,048 

236 

4,876 

44.32 

1919-20. 

Coop.  pay.  pat.  div 

1,300,711 

197 

6,602 

60.11 

Coop,  not  pay.  pat.  div. . . 

794,010 

153 

5,189 

47.17 

AVERAGE $4,804    $43 . 50 

On  the  basis  of  the  figures  presented  in  this  table,  it  may 
be  concluded  that  the  average  annual   income   of   a   co- 


39a  These  advantages  will  be  developed  in  the  succeeding  chapter. 

*oThis  represents  the  amount  of  operating  profit  after  interest  has  been 
deducted  on  borrowed  funds. 

*i  Average  operating  profit  per  company  is  obtained  by  dividing  total 
operating  profit  by  the  number  of  companies  reporting. 

*2  Average  profit  per  member  is  obtained  by  dividing  the  total  operating 
profit  of  the  individual  companies  by  110,  which  we  estimated  as  the 
average  number  of  members  composing  an  individual  company.  See 
Chapter  II,  p.  36. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING     107 

operative  elevator  company  is  not  far  removed  from  $5000, 
which  in  turn  should  net  the  individual  member,  taking 
110  as  the  average  number  of  members  composing  a  com- 
pany, a  sum  close  to  $45.  Were  averages  computed  ex- 
clusively for  the  cooperative  companies  paying  patronage 
dividends,  they  would  be  considerably  higher  than  those 
arrived  at.  Similarly  exclusive  averages  for  the  companies 
not  paying  patronage  dividends,  would  be  considerably 
lower. 

If,  therefore,  the  cooperative  elevator  companies  are 
considered  in  their  competitive  aspect,  and  the  additional 
gains  taken  into  account  that  they  can  secure  for  their 
patrons  by  returning  to  them  dividends  on  stock  and 
patronage,  the  conclusion  seems  warranted  that  cooperative 
marketing  is  an  enterprise  in  which  grain  growers  may 
engage  with  economic  advantage  to  themselves.  The  gains 
thus  made  possible  have,  however,  special  significance  for 
the  farmer  of  small  means.  From  a  certain  viewpoint  he  is 
proportionally  the  greatest  beneficiary  because  through 
membership  in  a  cooperative  elevator  company  he  can  bar- 
gain collectively  both  in  the  matter  of  selling  his  grain 
and  of  buying  his  supplies,  and  the  financial  benefits  he 
thus  secures,  are  used  to  supply  more  fundamental  needs 
than  those  obtained  by  his  more  prosperous  neighbors. 
But  here  again  it  is  important  to  distinguish  between  those 
companies  organized  as  ordinary  stock  corporations  and 
those  organized  as  true  cooperative  associations.  The  com- 
panies in  which  the  profits  are  distributed  on  the  basis  of 
stock-ownership  are  likely  to  be  of  no  considerable  benefit 
to  the  farmer  of  small  means  because  his  capital  available 
for  investment  in  the  enterprise  may  not  be  sufficient  to 
make  his  profits  commensurate  with  the  patronage  that  he 
contributes  to  the  company.  The  same  distinction  is  of 
importance  when  cooperative  grain  marketing  is  considered 
in  relation  to  the  tenant  class.  Tenants  as  a  rule  have  no 
capital  at  their  disposal  to  invest  in  an  elevator  company 
merely  for  the  dividends  that  such  investment  may  bring, 
and  hence  they  will  lack  adequate  incentive  to  take  out 
membership  in  a  company  that  distributes  its  profits  on 


108  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

the  basis  of  an  ordinary  corporation.  No  doubt,  frequently 
tenants  do  not  become  members  of  a  cooperative  elevator 
company  because  they  contemplate  moving  out  of  the  com- 
munity v^^ithin  a  short  time,*^  but  this  fact  does  not  vitiate 
the  claim  just  made. 

The  economic  gains  secured  as  a  result  of  cooperative 
grain  marketing  have  had  also  the  direct  effect  of  increas- 
ing the  value  of  the  land  in  those  sections  where  the  co- 
operative elevator  companies  are  located.  The  value  of 
agricultural  land,  disregarding  its  location,  is  determined 
by  the  price  of  the  products  which  are  grown  on  it.  A 
higher  price  paid  for  agricultural  products  enables  the 
owner  to  collect  a  higher  rental  from  his  land.**  The  abil- 
ity to  collect  a  higher  rental  in  turn  increases  the  value  of 
the  land,  and  this  increase  is  determined  by  capitalizing  the 
annual  rental  at  the  current  rate  of  interest.*^  Thus,  if 
an  acre  of  wheat  yields  twelve  bushels,  and  the  price  in 
that  locality  is  increased  three  cents  per  bushel  as  a  re- 
sult of  establishing  a  cooperative  elevator  company,  the 
capital  value  of  that  acre  of  land  would  be  increased  by 


*^  B.  H.  Hibbard,  The  Tenant  of  the  North  and  the  Marketing  of  His 
Crop,  p.  462,  in  Report  of  the  Third  National  Conference  on  Marketing 
and  Farm  Credits.  The  following  quotation  is  taken  from  the  paper  read 
by  Professor  Hibbard  at  the  Conference :  "Among  the  cooperative  elevators 
in  Iowa,  located  in  districts  where  the  farmers  are  half  tenants,  and  where 
tenants  sell  decidedly  more  than  half  of  the  grain  shipped,  but  one-fourth 
of  the  members  of  the  companies  are  tenants.  Thus  three-fourths  of  the 
shares  of  the  elevator  are  in  the  hands  of  men  who  own  land,  while  the 
tenants  selling  more  grain  than  all  of  these,  hold  but  one-fourth  of  the 
shares.  Not  only  are  the  tenants  in  the  hands  of  their  landowning  neighbors 
so  far  as  the  management  of  their  land  is  concerned,  but  where  the  farming 
population  is  half  tenants,  with  less  than  a  quarter  of  them  in  a  marketing 
association  it  means  strength  to  the  line-elevators  and  all  other  private  un- 
dertakings of  the  kind,  and  weakness  to  the  tenants  and  hence  to  the  whole 
farming  population."  This  statement  is  confirmatory  of  the  view  expressed 
in  the  preceding  paragraph  in  as  far  as  the  cooperative  elevator  companies 
of  Iowa  at  the  time  when  the  survey  was  made,  were  for  the  greater  part 
organized  as  ordinary  stock  corporations. 

**  This  presupposes  that  he  is  the  owner  of  land  from  which  he  could 
exact  rent  before  the  increase  of  price  occurred.  Rent  is  always  the  differ- 
ential between  land  which  commands  a  price  for  its  use  and  that  land  the 
use  of  which  brings  a  return  just  sufficient  to  cover  the  expenses  of  pro- 
duction. 

*'^  Frank  O'Hara,  Introduction  to  Economics,  pp.   180-182. 


RESULTS  ACHIEVED  THROUGH  COOPERATIVE  MARKETING     109 

six  dollars  if  the  current  rate  of  interest  were  six  per 
cent. 

Cooperative  grain  marketing,  apart  from  economic  con- 
siderations, has  a  social  and  an  educational  value.  Every 
cooperative  elevator  company  is  an  important  rural  social- 
izing agency.  Through  the  medium  of  the  company,  the 
farmers  of  the  community  learn  to  know  each  other,  and 
this  fact  helps  appreciably  in  breaking  down  that  indivi- 
dualism and  distrust  of  one  another's  motives  so  char- 
acteristic of  the  agricultural  classes.  The  economic  gains 
made  possible  through  association,  teach  the  members  of 
the  company  that  in  their  other  social  relations  also  they 
can  accomplish  more  through  collective  effort  than  through 
individual  action.  Questions  of  general  policy  frequently 
find  discussion  in  the  meetings  of  the  members,  who  are 
thus  led  to  take  an  interest  not  only  in  the  affairs  of  their 
community  but  also  in  those  of  the  State  and  Nation.  The 
annual  picnic,  which  is  held  by  many  companies,  offets  an 
opportunity  of  acquaintance,  mutual  good  fellowship,  and 
enjoyment.  Through  the  speakers  that  are  generally  pro- 
vided for  such  an  occasion,  the  picnic  serves  also  to  im- 
press upon  the  attendants  useful  lessons  regarding  agri- 
culture and  rural  problems  in  general.  The  fund  set  aside 
by  some  companies  for  educational  purposes,  can  be  used  to 
accomplish  the  same  end.  The  business  features  of  the 
organization  also  have  their  distinctly  educational  value. 
By  virtue  of  his  relations  with  the  company,  the  farmer 
becomes  familiar  with  new  business  forms  and  methods; 
the  small  savings  made  possible  through  collective  buying 
and  selling,  stimulate  the  practice  of  thrift.  On  the  other 
hand,  membership  in  a  cooperative  elevator  company  makes 
demands  upon  the  farmer's  capacity  for  altruism.  The 
motto  "each  for  all  and  all  for  each"  finds  practical  applica- 
tion in  every  cooperative  enterprise  that  succeeds.  This,  of 
course,  does  not  mean  that  cooperative  grain  marketing 
carries  no  appeal  to  individual  self-interest,  but  it  is  a 
recognition  of  the  fact  that  associated  endeavor  promotes 
the  individuaFs  welfare  more  effectively  than  isolated 
action  in  meeting  their  common  problems. 


110      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

These  then  are  the  economic  and  social  advantages  which 
members  of  a  cooperative  elevator  company  may  reasonably 
expect  from  their  enterprise.  But  these  results  can  be  ob- 
tained only  when  the  company  continues  in  successful 
operation,  and  success  depends  upon  the  prudent  adaptation 
of  means  to  the  desired  end.  This  leads  to  a  consideration 
of  the  factors  that  condition  success.  Experience  indicates 
that  these  companies  in  order  to  serve  their  purpose  and 
continue  in  successful  operation,  must  pay  due  regard  to 
certain  fundamental  principles  or  factors.  These  form 
the  subject  matter  of  the  next  chapter. 


CHAPTER  VI 

FACTORS  OF  SUCCESS  IN  COOPERATIVE  GRAIN 
MARKETING. 

In  closing  the  preceding  chapter  the  general  conclusion 
was  drawn  that  cooperative  grain  marketing  in  the  North 
Central  States  has  been  successful  as  a  general  movement. 
This  statement,  however,  does  not  imply  that  the  farmers 
of  any  particular  locality  may  form  a  grain  marketing 
association,  and  be  assured  that  their  undertaking  will  be 
successful.  It  is  important  to  distinguish  between  the  suc- 
cess of  a  movement  and  that  of  its  component  parts.  Co- 
operative grain  marketing  has  had  its  success  and  its  fail- 
ures. While  the  majority  of  the  companies  have  been  able 
to  provide  a  satisfactory  market  for  the  community  in 
which  they  were  established  and  to  yield  financial  returns 
to  their  patrons,  some  companies  have  not  succeeded  in 
doing  this  but  have  ended  in  financial  failure.  The  burden 
then  is  to  detect  those  factors  which  make  for  success  and 
those  which  make  for  failure  rather  than  to  establish  the 
inherent  feasibility  of  cooperative  grain  marketing  as  an 
economic  principle. 

As  the  success  or  failure  of  any  enterprise  depends  upon 
a  variety  of  factors  so  experience  has  established  that  a 
number  of  fairly  well  recognized  principles  must  be  ob- 
served in  the  organization  and  management  of  cooperative 
elevator  companies  before  their  success  can  be  reasonably 
assured.  A  conviction  on  the  part  of  the  members  that 
their  company  will  be  able  to  perform  a  real  service  in  the 
community ;  assurance  of  a  fairly  large  volume  of  business ; 
the  adoption  of  the  truly  cooperative  plan  of  organization ; 
efficient  management,  with  its  correlatives,  proper  book- 
keeping, accounting,  and  auditing;  a  loyal  membership; 
centralization  of  effort — ^these  are  the  factors,  stated  in  a 
summary  way,  that  assure  success. 

Ill 


112  THE  COOPERATIVE  ELEVATOR   MOVEMENT 

The  lack  of  appreciation  of  the  value  of  organization  on 
the  part  of  American  farmers,  has  become  almost  proverb- 
ial. A  fundamental  difficulty  seems  then  to  be  encountered 
at  once,  for  it  will  be  readily  conceded  that  successful  co- 
operative grain  marketing  is  impossible  without  a  well  cor- 
related and  coordinated  business  organization.  A  cursory 
review  of  the  early  history  of  the  cooperative  elevator 
movement  would  almost  lead  to  the  conclusion  that  only 
after  the  economic  independence  of  the  grain  growers  is 
threatened,  can  a  successful  marketing  association  be  estab- 
lished among  them.  When  a  cooperative  elevator  company 
was  organized,  the  competing  dealers  soon  created  dissatis- 
faction in  its  ranks  by  bidding  higher  prices  for  grain. 
Only  by  "penalizing**  its  members  for  withdrawing  their 
patronage,  could  their  loyalty  be  retained.  Within  recent 
years,  however,  a  broader  vision  regarding  the  value  of 
organization  has  begun  to  prevail.  The  cooperative  ele- 
vator companies  of  the  North  Central  States  are  today  not 
the  object  of  special  discrimination  as  they  were  during 
the  period  when  railroad  companies  refused  them  sites  for 
building  and  when  commission  firms  refused  to  accept 
their  grain,  and  yet  they  are  increasing  in  number  at  an 
accelerating  rate  and  individually  are  handling  vastly 
greater  amounts  of  grain  than  do  their  competitors.  Such 
a  situation  seems  to  indicate  that  the  grain  growers  of  this 
region  are  beginning  to  consider  the  marketing  of  grain 
as  much  a  part  of  their  occupation  as  they  do  the  growing 
of  it. 

It  is,  therefore,  scarcely  any  longer  necessary  that  their 
economic  independence  be  threatened  before  they  will  suffi- 
ciently surrender  their  individualism  to  associate  them- 
selves successfully  with  their  neighbors  in  a  cooperative 
marketing  organization.  At  the  same  time  it  is  equally 
certain  that  they  must  realize  that  their  proposed  com- 
pany can  perform  a  real  service  by  providing  a  more  ad- 
vantageous market  for  their  grain  than  existed  before. 
There  are  so  many  counter-currents  interfering  with  the 
efficiency  of  a  grain  elevator  company  that  an  important 
cause  affecting  the  farmers'  interests  must  be  the  dominant 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING        113 


motive  for  its  establishment.  In  some  companies  the  mem- 
bers are  scattered  over  a  wide  area.  Where  this  condition 
prevails,  there  is  likely  to  be  the  lack  of  that  community- 
spirit,  the  presence  of  which  is  the  necessary  foundation  of 
all  successful  associated  endeavor.  Again,  there  will  be 
others  who  feel  that  after  all  they  can  handle  their  problems 
almost  as  well  individually  as  through  collective  effort. 
Some  consider  marketing  scarcely  within  the  province  of 
their  occupation.  Others  are  sufficiently  prosperous  as  not 
to  care  seriously  for  the  additional  gains  they  may  be  able 
to  make  through  membership  in  an  association  which 
necessarily  interferes  with  their  perfect  freedom  of  action. 
Some  are  distrustful  of  entering  a  business  organization 
because  of  the  losses  they  have  suffered  in  the  past  through 
so-called  "professional  promoters,"  who  for  their  own  pri- 
vate interests  have  lured  the  farmers  into  business 
ventures.  Local  jealousies,  dissatisfaction  with  the  officers, 
and  especially  with  the  manager  on  account  of  the  grades 
he  assigns  to  their  grain,  the  dockage  he  takes,  and  the 
price  he  pays  for  it,  are  not  infrequently  the  causes  under- 
mining the  stability  of  a  company.  These  are  conditions, 
one  or  the  other  of  which  almost  every  company  must  at 
some  time  face.  Hence  it  is  a  necessary  prerequisite  that 
every  company  organized,  arise  spontaneously  out  of  the 
desires  of  its  future  members  if  its  success  is  to  be  reason- 
ably assured.^ 

The  organizing  of  a  cooperative  elevator  company  is  a 
business  undertaking,  and  unless  this  undertaking  is 
financially  sound  it  will  sooner  or  later  succumb  to  the 
opposition  which  it  will  almost  invariably  be  compelled  to 
withstand.  In  the  preceding  chapter  it  was  shown  that 
the  costs  of  operating  an  elevator  vary  little  regardless  of 
the  amount  of  grain  handled,  and  that  the  principal  eco- 
nomic advantage  of  the  cooperatives  is  due  to  the  larger 
amounts  of  grain  handled  by  them  than  by  their  com- 


1  Livingston  and  Seeds,  Marketing  Grain  at  Country  Points,  p.  41 ;  Black 
and  Robotka,  Opus  cit.  pp.  7,  8;  Filley,  Cooperation,  Extension  Bulletin 
No.  31,  pp.  28,  29,  Agric.  Exp.  Station  of  Nebraska;  O.  B.  Jesness,  Opus 
cit.  p.  6;  Bassett,  Moomaw,  and  Kerr,  Opus  cit.  p.  190. 


114      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

petitors.  Where  this  advantage  disappears  it  would  be 
inadvisable  from  a  financial  point  of  view  to  organize  an 
elevator  company  at  such  a  country  point,  provided  com- 
petitive prices  are  being  paid  for  grain. 

In  judging,  therefore,  the  advisability  of  organizing  a 
company  in  a  particular  locality,  it  is  highly  important  to 
estimate  the  approximate  volume  of  grain  generally  mar- 
keted at  that  country  station,^  and  to  ascertain  what  pro- 
portion of  this  amount  will  probably  be  handled  by  the 
cooperative  company.^  It  must  be  remembered  that  most 
country  stations  are  already  well  supplied  with  grain  ele- 
vators.* In  many  places  there  are  more  than  are  needed.^ 
If  a  company  is  organized  at  such  a  place,  and  it  does  not 
succeed  in  getting  a  larger  share  of  grain  than  do  its  com- 
petitors, the  cost  of  operating  will  be  increased  for  each  ele- 
vator at  that  particular  country  station,  a  cost  that  must 
ultimately  be  borne  by  all  the  farmers  of  the  community. 
Because  of  the  small  amounts  of  grain  handled  by  each 
elevator  in  this  instance,  competition  is  likely  to  become 
very  keen,  verging  on  the  cut-throat  type.  This  condition 
will  demand  the  highest  business  efficiency  at  the  very  out- 
set, and  if  this  efficiency  is  lacking  the  probable  result  will 
be  the  failure  of  the  company. 

Sine*  the  farmers  must  in  most  instances  enter  a  field 
already  occupied,  the  wisdom  of  buying  an  elevator  of  a 


2  Livingston  and  Seeds  in  their  Bulletin  advise  that  definite  information 
should  be  secured  for  a  five-year  period  to  arrive  at  a  conservative  esti- 
mate, p.  4L 

'  Black  and  Robotaka  advise  in  their  work  on  cooperative  marketing 
that  a  company  should  ordinarily  be  assured  of  100,000  bushels  annually 
unless  its  competitors  would  handle  still  less  or  give  unsatisfactory  service. 
Opus  cit.  p.  29. 

*  Livingston  and  Seeds,  Opus  cit.  p.  33;  Bulletin  of  U.  S.  Bureau  of 
Labor  Statistics,  Opus  cit.  p.  14;  Report  of  the  Federal  Trade  Commission 
on  the  Grain  Trade,  Vol.  I,  p.  38.  The  average  number  of  elevators  per 
station  is  2.38  according  to  this  Report. 

"  Livingston  and  Seeds,  Opus  cit.  p.  14.  The  following  quotation  is  taken 
from  this  Bulletin:  "In  some  sections  there  are  more  elevators  than  the 
volume  of  business  will  justify,  some  communities  being  supplied  with  8  or 
10  houses,  when  2  or  3  would  be  adequate."  Cf .  Bulletin  of  U.  S.  Bureau 
of  Labor  Statistics,  Opus  cit.  p.  14.  See  also  American  Cooperative 
Journal  Vol.  12  (1917),  pp.  437-38,  499-522,  564-65. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING       115 

competitor  rather  than  of  building  one,''^  is  apparent,  other 
things  being  equal.^  In  all  probability  competition  will  be 
less  severe,  the  company  will  be  reasonably  certain  of  a 
larger  volume  of  business,  and  hence  also  of  larger  profits. 
Finally  such  action  may  solve  the  problem  of  procuring  an 
efficient  and  experienced  manager  for  the  company. 

Assuming  then  that  local  conditions  warrant  the  forma- 
tion of  a  cooperative  elevator  company,  according  to  what 
plan  should  it  be  organized?  Which  of  the  four  types  of 
organization  promises  the  best  results?  Is  it  the  ordinary 
stock  corporation,  the  stock  corporation  with  its  limitation 
of  shares  and  voting  power,  the  corporation  which  besides 
these  two  characteristics  embodies  a  third,  namely,  the 
distribution  of  net  earnings  according  to  the  amount  of 
business  transacted  with  the  concern,  or  is  it  the  co- 
operative non-stock  association?  The  answer  to  this  ques- 
tion will  depend  largely  upon  considerations  of  the  results 
a  cooperative  elevator  company  should  achieve  for  the  com- 
munity in  which  it  is  established. 

If  the  purpose  in  organizing  is  the  seeking  of  an  invest- 
ment, then  the  ordinary  corporation  form  is  adequate. 
While  the  corporation  form  is  especially  designed  for  en- 
terprises requiring  large  amounts  of  capital,  for  example, 
the  building  of  a  railroad,  this  does  not  prevent  it  from  be- 
ing equally  applicable  to  smaller  enterprises,  such  as  an 
elevator  company.  Experience  proves  that  from  a  financial 
point  of  view  the  ordinary  corporate  form  is  adequate  to 
function  as  a  basis  for  successfully  conducting  a  grain 
elevator.  Thus,  when  some  companies  pay  dividends  of  30 
per  cent  on  the  invested  stock,'  they  are  evidently  successful 


*aWhen  the  farmers  buy  an  elevator  instead  of  building  one,  it  is  well 
to  call  in  an  experienced  accountant  to  appraise  the  value  of  the  elevator 
and  its  equipment. 

«  An  important  consideration  is  the  elevator's  equipment  of  machinery 
for  conditioning  grain,  or  the  adaptability  for  its  installation.  The  saving 
made  possible  in  freight  by  cleaning  grain  at  the  country  elevator  is  an 
important  item.  It  costs  as  much  to  ship  a  bushel  of  screenings  to  the 
terminal  market  as  it  does  to  ship  a  bushel  of  the  finest  quality  grain. 
Screenings  can  be  profitably  sold  by  the  elevator  or  returned  to  the  farmer 
and  used  for  feed. 

7  L.  D.  Weld,  Opus  cit.  pp.  7,  8 ;  Black  and  Robotka,  Opus  cit.  p.  28. 


116       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

financially.  But  do  such  high  dividends  necessarily  imply 
large  financial  returns  for  all  the  members?  Does  not  the 
fact  that  stock  yields  a  dividend  of  30  per  cent  create  a 
strong  presumption  that  the  capital  stock  in  such  a  com- 
pany has  become  concentrated  in  the  hands  of  a  few,  and 
that  the  company  exists  primarily  for  the  benefit  of  these 
few  rather  than  for  the  benefit  of  all  the  members?  The 
concentration  of  ownership  and  the  consequent  centraliza- 
tion of  control  are  indeed  the  dangers  to  which  the  co- 
operative elevator  company  organized  on  the  ordinary 
corporate  plan  is  constantly  subject.^  When  this  concen- 
tration of  ownership  and  control  has  taken  place,  the 
members  owning  little  of  the  capital  stock,  have  no  longer 
a  special  interest  in  the  company,  and  if  a  competitor  pays 
higher  prices  for  grain,  the  patronage  of  these  will  in  all 
probability  be  lost  to  the  company. 

The  primary  reason,  however,  why  farmers  organize  a 
grain  elevator  company  is,  or  should  be,  to  secure  for  them- 
selves more  advantageous  marketing  facilities  than  existed 
before.  They  are  not  primarily  seeking  an  investment. 
Any  type  of  organization  that  does  not  secure  this  purpose 
is  ill-adapted  to  a  cooperative  elevator  company.  Any  type 
which  tends  to  create  a  membership  interested  in  the  en- 
terprise as  an  investment  rather  than  as  a  method  of  pro- 
viding advantageous  marketing  facilities,  fosters  a  condi- 
tion undermining  the  stability  of  the  company. 

As  long  as  the  members  own  capital  stock  in  direct  pro- 
portion to  the  amount  of  grain  they  market,  the  purpose  of 
the  company  can  still  be  secured.  But  the  difficulty  of  ap- 
portioning stock  among  all  the  members  in  such  a  manner 
that  each  one  will  own  this  proportionate  share  and  the 
equally  great  difficulty  of  maintaining  this  proportion, 
render  the  ordinary  corporation  type  of  organization  a 
poor  plan  for  a  cooperative  elevator  company  to  adopt. 

To  meet  these  difficulties  many  of  the  companies  have 


sMehl  and  Jesness,  Opus  cit.  p.  3;  Black  and  Robotka,  Opus  cit.  p.  30; 
Cf .  Jesness,  Opus  cit.  10 ;  Bassett,  Moomaw,  Kerr,  Opus  cit.  191 ;  Cumber- 
land, Cooperative  Marketing,  p.   11. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING       117 

inserted  clauses  in  their  by-laws,  which  allow  to  each 
member  only  one  vote  and  limit  the  number  of  shares  each 
member  may  own.  These  provisions  make  the  company  a 
compromise  organization  between  the  ordinary  corporation 
and  the  cooperative  stock  company.  It  differs  from  the 
latter  only  in  that  dividends  are  distributed  in  proportion 
to  the  amount  of  stock  owned  and  not  on  the  basis  of  busi- 
ness transacted  with  the  concern.  Do  these  provisions 
achieve  adequately  the  purpose  for  which  they  were  de- 
signed? By  allowing  to  each  member  equal  voting  power, 
the  danger  of  centralization  of  control  is  averted,  and  each 
member  is  given  the  incentive  to  have  a  personal,  vital  in- 
terest in  the  enterprise. 

The  second  provision,  however,  does  not  achieve  its  pur- 
pose so  well  as  does  the  first.  Even  though  there  is  a  limita- 
tion set  upon  the  amount  of  stock  each  member  may  own, 
it  does  not  necessarily  follow  that  each  member  will  own 
stock  in  proportion  to  the  amount  of  business  he  transacts 
with  the  concern,  and  this  is  an  essential  requisite  for  a 
company  of  this  type  to  be  assured  of  permanent  success. 
Every  farmer  who  contributes  business  to  the  enterprise 
in  excess  of  the  amount  of  stock  owned  by  him,  to  that  ex- 
tent will  feel  at  liberty  to  desert  the  company  if  outside 
firms  offer  better  prices  for  grain.  But  there  are  other 
difficulties  which  in  time  may  undermine  the  stability  of 
such  a  company.  Since  dividends  are  paid  on  stock,  there 
will  be  a  tendency  for  persons  to  retain  membership  in  the 
association  if  it  is  prosperous,  even  though  they  have  re- 
tired from  farming  and  have  moved  out  of  the  neighbor- 
hood. Were  all  the  companies  based  on  this  compromise 
form  of  organization  there  would  no  doubt  be  a  consider- 
able amount  of  ^'absentee  ownership"  in  view  of  the  gen- 
eral trend  toward  the  cities  and  in  view  of  the  extent  of 
farm  tenantry,  which  always  implies  a  shifting  of  the  rural 
population.  This  shifting  is  in  itself  an  obstacle  which 
every  farmers'  association  must  meet,  but  it  is  better  for 
the  association  to  have  a  changing  local  membership  with 
like  interests  than  a  stable  membership  scattered  over  a 
wide  area,  and  with  varying  interests. 


118      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

These  difficulties  might  be  eliminated  through  clauses  in 
the  by-laws  regulating  conditions  of  membership,  although 
their  enforcement  might  at  times  entail  litigation.  Cer- 
tainly it  would  be  desirable  if  a  type  of  organization  were 
at  hand  which  would  tend  to  eliminate  these  difficulties 
automatically.  Does  the  cooperative  stock  corporation 
offer  a  solution?  What  are  its  advantages  as  a  type  of 
organization  for  a  grain  elevator  company? 

Like  the  type  of  organization  just  described,  the  co- 
operative stock  corporation  embodies  the  features  of  limita- 
tion of  voting  power  and  of  stock  ownership.  It  differs 
from  the  former  in  this  that  after  the  current  rate  of  in- 
terest has  been  paid  on  the  invested  capital,  all  further 
profits  or  earnings  are  pro-rated  to  the  members  in  propor- 
tion to  the  amount  of  business  each  one  has  transacted 
with  the  association.  Through  the  limitation  of  voting 
power,  democratic  control  of  the  association  is  assured. 
Since  each  one  has  the  same  degree  of  control,  the  mem- 
bers owning  a  small  amount  of  stock  will  feel  a  personal, 
vital  interest  in  the  enterprise ;  and  no  one  will  be  tempted 
to  buy  up  a  large  amount  of  stock  as  a  means  of  securing 
control  of  the  policies  of  the  company.^  By  limiting  the 
number  of  shares  each  member  may  own,  opportunity  is 
offered  to  all  the  farmers  of  the  community  to  own  at  least 
one  share  of  stock  in  the  enterprise.  This  limitation  se- 
cures also  a  further  safeguard  in  the  interests  of  demo- 
cratic control.^*^  The  provision  whereby  only  the  current 
or  legal  rate  of  interest  is  paid  on  the  invested  capital,  pre- 
vents persons  from  buying  or  retaining  stock  in  the  com- 
pany, primarily  for  the  profit  that  such  stock  may  yield.^^ 
The  final  provision,  namely,  the  distribution  of  profits  ac- 
cording to  the  amount  of  business  transacted  with  the  asso- 
ciation, offers  a  powerful  incentive  to  loyalty  on  the  part 
of  all  the  members.  Each  member  of  a  company  organized 
on  this  plan,  will  strive  to  market  as  much  grain  with  the 
company  as  possible  since  his  profits  stand  in  direct  pro- 


»  Mehl  and  Jesness,  Opus  cit.  p.  3 ;  Black  and  Robotka,  Opus  cit.  p.  30 
Cf.  Jesness,  Opus  cit.  p.  10;  Bassett,  Moomaw,  and  Kerr,  Opus  cit.  p.  191. 
^0  Ibidem. 
11  Ibidem. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING       119 

portion  to  the  volume  of  business  he  transacts  with  it.  ^he 
importance  of  this  provision  as  a  factor  of  success  in  con- 
ducting an  elevator  company  cannot  be  easily  overesti- 
mated. Any  plan  of  organization  which  does  not  secure  the 
results  intended  by  this  provision,  is  deficient.  Hence  the 
cooperative  capital  stock  association  seems  best  adapted  to 
meet  the  needs  of  the  situation. ^^ 

The  cooperative  non-stock  association  embodies  the  same 
incentive  to  loyalty  on  the  part  of  the  members,  but  it  has 
not  found  favor  because  in  the  opinion  of  the  grain  growers 
it  does  not  provide  a  satisfactory  method  of  procuring  the 
large  amount  of  capital  necessary  to  finance  a  company 
adequately.  Furthermore,  some  of  the  state  incorpora- 
tion laws  do  not  make  specific  provision  for  this  type  of 
association. 

In  order,  however,  that  the  cooperative  stock  association 
achieve  its  purpose,  it  is  important  that  the  rate  of  dividend 
on  capital  stock  be  not  excessive.  If  the  rate  is  higher  than 
eight  per  cent,  the  company  tends  to  become  an  enterprise 
conducted  primarily  for  profit  and  in  the  interest  of  the 
large  stockholder.  Similarly,  a  limitation  should  be  set 
upon  the  amount  of  capital  stock  each  person  may  own  in 
the  concern,  but  the  point  of  limitation  must  be  governed 
largely  by  local  conditions,  such  as  the  number  of  prospec- 
tive members,  their  comparative  financial  status  in  rela- 
tion to  the  capitalization  of  the  company,  and  their  willing- 
ness to  finance  the  enterprise. 

As  has  been  seen,  a  difference  of  opinion  exists  among 
grain  growers  as  to  what  should  constitute  the  proper  basis 
of  distributing  the  patronage  dividend,  some  maintaining 
that  it  should  be  based  upon  the  value  of  the  grain  de- 
livered by  each  patron  and  not  upon  the  quantity.  An 
examination  of  the  method  of  conducting  the  business  of 
an  elevator  will  lead  to  the  conclusion  that  the  patronage 
dividend  should  be  based  upon  the  quantity  of  the  grain 
delivered  and  not  upon  the  price  received  for  it.  It  is  the 
practice  of  every  elevator  to  allow  a  certain  margin  of 
profit  on  each  bushel  of  grain  handled.    The  total  amount 


12  Cf.  Ibidem. 


120      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

of  profit  will,  therefore,  be  in  direct  proportion  to  the 
amount  of  grain  handled,  regardless  of  whether  the  grain 
has  been  sold  at  a  high  or  a  low  price.  As  is  well  stated 
in  one  of  the  Bulletins  of  the  U.  S.  Department  of  Agricul- 
ture: "If  the  value  of  the  grain  determined  the  profit,  a 
value  bajiis  could  be  established  for  determining  patronage 
dividends;  but  the  fact  that  two  persons  hauling  the  same 
kind  of  grain  at  different  times  of  the  year  under  condi- 
tions of  price  fluctuation  would  receive  varying  amounts  of 
money  for  the  same  number  of  bushels  of  the  same  com- 
modity shows  that  it  is  not  the  proper  basis  for  patronage 
dividend  distribution."  ^^ 

The  adoption  of  a  plan  of  organization,  which  determines 
the  method  of  distributing  profits,  specifies  only  a  few  of 
the  many  social  relations  arising  out  of  the  formation  of 
a  company.  To  outline  and  define  these  various  relations, 
every  company  should  draft  a  set  of  by-laws.^*  Without 
by-laws  determining  succinctly  and  comprehensively  the 
rights  and  duties  of  the  members  toward  each  other  and 
toward  the  company  as  a  collective  body,  misunderstand- 
ing and  dissatisfaction  are  sure  to  follow.  These  by-laws, 
therefore,  should  state  exactly  what  is  proposed  to  be 
done  and  how  it  is  to  be  done.  They  should  present  in 
detail  the  working  plan  of  the  organization.  The  by-laws 
of  an  association  have  been  well  compared  to  the  specifica- 
tions which  guide  the  contractor  in  constructing  a  build- 
ing. Just  as  from  the  specifications  the  contractor  is  en- 
abled to  build  the  structure  as  desired,  so  from  a  set  of 
by-laws  the  members  should  be  able  to  ascertain  precisely 
how  their  company  will  be  organized  in  conducting  its 
business.^'* 

Upon  its  formation  the  company  should  be  incorporated 
under  the  incorporation  law  of  the  state  in  which  the  com- 
pany operates.  Incorporation  gives  the  company  a  distinct 
legal  status,  enabling  it  to  act  as  a  corporate  entity.    It  also 


^3  John  R.  Humphrey  and  W.  H.  Kerr,  Patronage  Dividends  in  Co- 
operative Grain  Companies,  p.  6,  in  Bulletin  371. 

^*  See  sample   set   of    by-laws   at    end   of    treatise,    Appendix   B. 

I'^Bassett  and  Jesness,  Cooperative  Organisation  By-Laws,  p.  1,  Bulletin 
541,  U.  S.  Dept.  of  Agric. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING        121 

definitely  limits  the  financial  liability  of  its  members.  In 
some  states,  the  un-incorporated  association  has  the  legal 
status  of  a  partnership/**  and  in  a  partnership  the  liability 
of  each  member  is  unrestricted.  Again,  in  other  states 
the  un-incorporated  association  is  considered  as  an  agent 
for  its  members,  and  as  such  the  legal  status  of  its  mem- 
bers is  that  of  principals.^^ 

Though  its  opportunities  be  very  great  and  though  the 
plan  devised  for  conducting  its  business  be  very  good,  if 
the  company  is  not  efficiently  managed,  nothing  will  save 
it  from  financial  failure.  There  is  no  other  factor  upon 
which  its  success  so  much  depends  as  upon  efficient  man- 
agement. And  while  the  management  rests  fundamentally 
with  the  board  of  directors,  the  efficiency  of  this  manage- 
ment will  depend  in  a  large  measure  upon  the  one  whom  the 
board  of  directors  chooses  as  the  manager  of  the  elevator 
and  upon  the  limitations  it  sets  to  his  authority  and  re- 
sponsibility.^^ 

From  the  nature  and  extent  of  the  manager's  work  issue 
the  causes  which  make  his  position  so  difficult  and  so 
pivotal  in  the  success  of  the  enterprise.  His  work  is  more 
intricate  and  requires  greater  insight  than  that  of  the 
manager  of  a  line  elevator  company.  The  latter  generally 
does  not  sell  the  grain  that  he  buys;  he  merely  forwards 
the  information  of  the  amount  bought,  to  the  central  office, 
which  then  attends  to  the  matter  of  selling.  The  manager 
of  the  cooperative  company  must  not  only  buy  grain 
judiciously  but  he  must  also  sell  it  advantageously.  This 
requires  that  he  possess  a  thorough  knowledge  of  grain 
marketing  conditions  so  as  to  determine  when,  where,  and 
how  to  sell.  Besides  grain,  he  must  buy  and  sell  a  variety 
of  side-lines;  and  of  each  transaction  he  must  keep  an  ac- 
curate account  in  his  books. 

Keeping  proper  accounts  of  all  business  transactions  of 


i«  Opus  cit.  p.  4. 

^■^  Ibidem. 

18  The  mutual  limitation  of  authority  between  the  board  of  directors 
and  the  manager  of  the  elevator  demands  careful  adjustment.  See  their 
limitations  as  drawn  in  the  sample  set  of  by-laws  at  end  of  treatise,  Ap- 
pendix B,  Art.  II  and  III. 


122      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

the  company  constitutes  a  necessary  and  important  feature 
of  the  manager's  work.  Accurate  accounting  promotes 
economy  in  conducting  the  enterprise,  creates  confidence  in 
the  membership,  and  places  the  company  in  a  better  posi- 
tion to  secure  financial  aid.^^  That  many  of  the  managers 
of  the  cooperative  companies  do  not  keep  proper  accounts 
has  long  been  recognized  and  was  disclosed  again  in  the 
recent  investigation  of  country  grain  marketing  by  the 
Federal  Trade  Commission.^"  The  need  for  uniform  and 
efficient  accounting  in  these  companies  has  induced  the 
Office  of  Markets  and  Rural  Organization  of  the  U.  S. 
Department  of  Agriculture  to  perfect  a  system  of  accounts 
for  them.21  This  system  is  being  introduced  in  many  of 
the  companies.^^ 

The  manager  more  than  anyone  else,  is  the  representative 
of  the  company,  both  to  its  individual  members  and  to  the 
other  people  of  the  community.  Through  his  general  tact 
and  prudence  when  associating  with  the  merchants  of  the 
town,  he  can  correct  false  impressions  that  may  exist  re- 
garding the  company.  For  it  must  be  remembered  that 
town  merchants  are  not  infrequently  opposed  to  a  coopera- 
tive elevator  company  because  through  the  large  variety  of 
side-lines  it  handles,  it  encroaches  upon  what  they  consider 
their  trade ;  and  no  doubt  they  vaguely  feel  the  possibility  of 
farmers  organizing  a  cooperative  store  if  their  elevator 
company  proves  a  success.  In  dealing  with  non-members 
who  come  to  the  cooperative  elevator  to  sell  their  grain  or 
purchase  supplies,  the  manager  through  that  same  tact  and 
prudence  may  readily  gain  for  the  company  permanent 
customers  and  probably  future  members.  But  primarily 
the  manager  is  the  representative  of  the  company  to  its 
individual  members.  Naturally  there  will  be  divergent 
views  at  times  among  them  as  to  the  policies  of  buying 
grain  and  selling  supplies  that  the  manager  is  pursuing. 


^^  W.    H.    Kerr,    Cooperative    Organisation   Business   Methods,   p.    2,    in 
Bulletin  178,  U.  S.  Dept.  of  Agric. 
•   ^^Report  on  the  Grain  Trade,  Vol.  I,  p.  22. 

21  J.   R.  Humphrey  and  W.  H.  Kerr,  A  System  of  Accounts  for  Co- 
operative Elevators.     Bulletin   236,    1915,   U.    S.    Dept.   of    Agric. 

22  Black  and  Robotka,  Opus  cit.  p.  13 ;  Erdman,  Opus  cit.  p.  152. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING       123 

There  will  be  suspicion  among  them  now  and  then  as  to  the 
grade  assigned  to  their  grain,  the  dockage  taken,  the 
weight  given,  and  as  to  the  price  paid  for  it.  Under  these 
circumstances,  it  requires  on  the  part  of  the  manager  not 
only  intelligence  of  a  high  order  but  patience  as  well. 

Honesty  in  the  manager  is  even  more  requisite  than  busi- 
ness knowledge  and  patience.  Failures  have  resulted  be- 
cause managers  speculated  in  grain  through  buying 
"options"  or  dealing  in  "futures,"  or  through  outrightly 
defrauding  the  company.  As  a  measure  to  protect  the 
company  against  such  practice,  an  article  should  be  in- 
serted in  the  by-laws,  prohibiting  the  manager's  specula- 
tion in  grain.  For  the  same  reason,  the  books  of  the  man- 
ager should  be  audited  at  stated  intervals,  and  he  himself 
should  be  required  to  give  a  bond  as  a  guarantee  of  the 
faithful  performance  of  his  duties. 

Closely  allied  to  efficient  management,  in  fact,  an  integral 
part  of  it,  is  the  auditing  of  the  manager's  accounts.  A 
careful  audit  will  disclose  fraud,  detect  errors  and  omis- 
sions as  also  the  defects  of  the  business  methods  of  the 
company.  It  promotes  a  business  reputation  for  the  com- 
pany, creates  confidence  in  the  membership  and  protects 
the  manager  himself  from  unwarranted  criticism.  These 
advantages  make  it  eminently  worth  while  for  every  com- 
pany to  have  its  accounts  audited  several  times  each  year. 
Nor  should  these  audits  be  merely  internal,  namely,  those 
conducted  by  the  board  of  directors  or  by  a  committee 
selected  from  among  its  members.  It  is  advisable  that  they 
should  conduct  such  an  audit  every  three  or  four  months; 
but  at  least  once  a  year  an  expert  public  accountant  should 
be  called  in  to  make  a  thorough  examination  of  all  the 
books  of  the  company.^^ 

Nothing  is  more  emphasized  in  the  literature  on  co- 
operative marketing  than  the  necessity  of  an  efficient  man- 
ager. Thus  C.  F.  Taeusch  in  his  survey  of  cooperative 
marketing  in  Ohio,  says:  "The  investigator  has  come 
across  organizations  violating  every  theoretical  principle 
of  successful  cooperation,  but  preeminently  successful  be- 


23  W.  H.  Kerr,  Cooperative  Organization  Business  Methods,  p.  18. 


124      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

cause  of  the  efforts  of  an  efficient  manager.  On  the  other 
hand,  cooperative  concerns  that  would  register  one  hun- 
dred per  cent  in  theory  are  barely  existing,  because  of  the 
fact  that  a  poor  manager  is  in  charge."  ^^  Similarly  Pro- 
fessor Filley  of  the  University  of  Nebraska,  in  his  survey  of 
cooperation  in  that  State,  says :  "The  most  important  task 
of  the  directors  is  the  selection  of  a  manager,  for  upon 
him  devolves  to  a  large  extent  the  success  of  the  company; 
if  they  select  a  competent  man,  the  rest  of  their  work  is 
easy."  ^s  jje  then  quotes  J.  M.  Shorthill,  who  is  one  of  the 
foremost  leaders  in  the  cooperative  elevator  movement. 
After  stating  that  the  manager  is  the  most  important  single 
factor  of  success  in  an  elevator  company,  Mr.  Shorthill 
enumerates  the  manager's  necessary  qualifications:  "In 
choosing  a  manager,  the  first  qualification  to  consider  is 
honesty,  the  second  industry,  the  third  natural  business 
ability,  and  the  fourth  business  education.  All  are  im- 
portant, but  they  are  named  in  the  proper  order."  ^^ 

The  opinions  here  given  reflect  a  common  consensus  re- 
garding the  importance  of  efficient  management.  Since 
efficient  management  is  such  an  important  factor,  it  is  evi- 
dent that  farmers  must  be  willing  to  pay  a  salary  sufficient 
to  secure  and  retain  an  efficient  manager.  But  farmers 
have  frequently  not  realized  this  necessity.  Professor  Weld 
found  that  in  Minnesota  the  salaries  of  managers  in  those 
companies  that  lost  money,  were  on  the  average  ten  dollars 
less  per  month  than  the  salaries  of  managers  in  companies 
that  returned  profits.^^  Farmers  cannot  expect  to  secure 
managers  of  high  ability  at  less  cost  than  can  private  con- 
cerns since  both  have  to  bid  in  the  open  market. 

There  is  nothing  automatic  about  a  cooperative  elevator 
company.  It  cannot  possibly  become  a  factor  in  reducing 
the  costs  of  country  grain  marketing,  and  thereby  increase 
the  income  of  the  grain  growers,  without  their  own  co- 


2*  Rural  Cooperation  and  Cooperative  Marketing  in  Ohio,  in  Circular 
No.  141.  p.  36,  Ohio  Agric.  Exp.   Station. 

^^Cooperation,  in  Extension  Bulletin  No.  31,  p.  26,  Neb.  Agric.  Exp. 
Station. 

26  Ibidem. 

27  Opiis  cit.  p.  9. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING       125 

operation.  Hence,  to  say  that  loyalty  of  the  members  is  a 
necessary  factor  of  success  is  but  citing  a  truism.  The 
task,  therefore,  is  rather  to  detect  the  causes  from  which  a 
lack  of  loyalty  proceeds  and  to  suggest  methods  of  action  by 
which  loyalty  may  be  promoted,  than  to  establish  the 
necessity  of  loyalty  itself. 

The  principal  causes  from  which  disloyalty  proceed,  have 
been  mentioned  at  the  beginning  of  this  chapter.  To  coun- 
teract these,  every  company  can  take  certain  measures. 
The  first  one  naturally  to  suggest  itself  is  that  of  enforcing 
loyalty  through  a  penalty  clause,  or  some  other  coercive 
measure.  There  is  no  doubt  that  the  penalty  clause  played 
an  important  role  in  the  early  days  of  the  cooperative  ele- 
vator movement  and  that  it  saved  many  companies  from 
failure.  At  present  it  is  very  doubtful  whether  its  use 
would  be  advisable.  The  questionable  legality  of  the  clause, 
in  the  first  place,  prevents  it  from  being  an  effective 
measure.  No  company  can  institute  proceedings  against  a 
member  and  be  assured  that  its  cause  will  be  sustained  in 
court,  if  the  penalty  clause  is  the  basis  of  complaint.  Nor 
can  a  company  employing  the  penalty  clause,  hope  to  enjoy 
the  sympathy  of  the  public.  Any  clause  whicli  apparently 
interferes  with  the  freedom  of  enterprise,  will  be  in  dis- 
favor with  competing  dealers  and  with  the  community  at 
large,  and  it  is  likely  to  be  in  disfavor  with  the  members 
themselves.  Used  as  a  coercive  measure  the  penalty  clause 
may  serve  only  to  antagonize  the  members.  Hence,  part 
from  its  questionable  legality,  it  may  defeat  its  own  pur- 
pose. 

There  are,  however,  other  measures  available  which  may 
contribute  toward  retaining  and  promoting  the  loyalty  of 
the  members  toward  their  company.  In  the  first  place,  it 
should  be  remembered  that  the  loyalty  of  the  members  is 
in  most  instances  assured  if  this  is  the  only  condition  want- 
ing to  success.  It  has  indeed  been  well  said  that  a  co- 
operative association  to  be  successful,  must  have  loyal 
members,  but  it  is  equally  true  that  the  members  will  be 
loyal  if  their  company  is  successful.  In  other  words,  the 
success  of  the  company  depends  upon  the  proper  correlation 


126      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

and  coordination  of  all  its  parts.  Hence  all  the  factors 
which  have  thus  far  been  considered  are  factors  contribut- 
ing toward  loyalty.  If  the  management  is  efficient  and  if 
the  company  is  organized  on  the  plan  of  distributing  profits 
on  patronage,  the  greatest  incentives  to  loyalty  are  offered. 
But  every  company  can  protect  itself  still  further.  The 
by-laws  should  state  clearly  the  obligations  of  the  mem- 
bers so  that  they  will  know  what  the  company  has  a  right 
to  expect  from  them.  The  conditions  of  membership  can 
also  be  so  fixed  as  practically  to  eliminate  undesirable  mem- 
bers. In  a  special  crisis,  a  meeting  might  be  called  at  which 
the  president  or  his  representative  could  explain  in  detail 
the  affairs  of  the  company  and  appeal  to  the  members  to 
support  their  own  organization  for  the  sake  of  insuring 
their  own  interests.^*  It  should  likewise  be  the  policy  of 
the  board  of  directors  to  induce  the  stockholders  to  sub- 
scribe to  a  publication  representative  of  the  movement, 
from  which  they  might  learn  the  successes  of  other  com- 
panies and  how  these  successes  were  often  won  in  the  face 
of  opposition. 

These  measures  should  in  most  instances  be  adequate  to 
retain  a  membership  sufficiently  loyal  to  insure  the  suc- 
cess of  the  company.  While  loyalty  is  surely  necessary,  it 
should  also  be  remembered  that  a  certain  amount  of  dis- 
loyalty does  not  at  once  destroy  a  cooperative  elevator 
company.  In  fact,  disloyalty  or  rather  dissatisfaction  on 
the  part  of  one  or  the  other  member  may  at  times  be  well 
founded,  and  thus  may  stimulate  the  board  of  directors 
and  the  manager  to  serve  the  company  more  efficiently. 
Hence,  instead  of  relying  on  coercive  measures  which  prob- 
ably cannot  be  enforced  without  recourse  to  litigation 
and  which  at  best  cannot  keep  a  company  from  failure  if 
the  confidence  of  the  members  has  been  lost,  it  seems  best 
to  rely  on  voluntary  agreements,  persuasion  and  education, 
to  retain  the  loyalty  of  the  members. 

Attention  should,  however,  here  be  called  to  a  recently 
devised  substitute  for  the  penalty  clause  as  a  means  of 
securing  loyalty.    This  substitute  takes  the  form  of  a  spe- 


28  See  Mehl  and  Jesness,  Opus  cit.  p.  29. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING       127 

cial  contract  between  the  company  and  the  individual  meni- 
bers.  The  company  agrees  to  provide  certain  advantages 
for  its  members,  such  as  the  maintaining  of  an  elevator 
and  furnishing  market  news,  etc.,  and  the  member  in  turn 
agrees  to  pay  to  the  company  for  these  advantages  a  speci- 
fied amount  of  money  for  each  bushel  of  grain  that  he 
sells  or  markets  either  directly  or  indirectly  to  or  through 
the  company  or  any  other  dealer  during  the  time  of  the 
contract.  But  it  is  further  stipulated  that  for  the  grain 
the  member  sells  or  markets  to  or  through  his  own  com- 
pany the  amount  of  money  he  agrees  to  pay  (one  cent) 
per  bushel,  shall  not  be  in  addition  to,  but  a  part  of,  the 
whole  charge  or  charges  that  may  be  established  by  the 
company  for  the  services  that  it  performs  for  its  mem- 
bers.^^  This  contract  differs  from  the  penalty  clause  in 
two  aspects.  It  applies  to  all  grain  that  the  members  mar- 
ket, and  not  only  to  that  which  they  sell  at  other  grain 
dealers.  Furthermore,  the  company  in  enforcing  the  pro- 
visions of  the  contract,  can  rest  its  claim  on  service  per- 
formed. As  such,  it  is  believed  that  this  contract  will 
withstand  legal  objections  much  more  successfully  than 
would  the  penalty  clause,  or  the  other  coercive  measure 
whereby  the  members  agree  to  pay  to  the  company  cer- 
tain sums  as  liquidated  damages  which  the  company  may 
have  sustained  because  of  their  selling  or  marketing  grain 
at  other  dealers.^^ 

The  same  reasons  prompting  individual  farmers  of  a 
community  to  organize  a  local  company  to  provide  a  more 
advantageous  market  for  their  grain,  should  prompt  the 
individual  companies  to  unite  into  state  associations,  and 
these  to  federate  into  a  national  association.  Through  such 
centralization  of  effort,  new  companies  can  be  organized 
in  the  most  efficient  way  by  giving  them  the  advantage 
of  past  experience;  the  less  efficient  companies  can  be 
helped  to  reorganize  on  a  more  efficient  basis ;  all  the  com- 
panies can  be  assisted  in  various  ways;  the  general  stabil- 
ity of  the  cooperative  elevator  movement  can  thus  bel  pro- 


29  For  form  of  such  contract  see  Mehl  and  Jesness,  Opus  cit  p.  38. 

30  Opus  cit,  p.  30. 


128  TPIE   COOPERATIVE   ELEVATOR    MOVEMENT 

moted  and  its  future  development  directed  into  the  right 
channels.  Problems  dealing  with  the  distribution  of  cars, 
properly  equipped  cars,  collection  of  damage  claims,  equit- 
able transportation  rates,  legislation  govering  transporta- 
tion and  terminal  marketing  facilities — these  are  problems 
requiring  concentrated  effort  and  talent  that  can  be  pro- 
vided only  through  organization  as  exemplified  in  the  Farm- 
ers State  and  National  Grain  Dealers  Associations.  The 
advantageous  bonding,  insurance,  and  auditing  rates  avail- 
able to  the  cooperative  elevator  companies  through  the 
services  of  the  state  associations,  should  be  sufficient  finan- 
cial inducement  to  take  out  membership  in  these  bodies. 
The  results  achieved  by  the  state  associations  merit  for 
them  the  support  of  the  local  companies,  and  through  them 
the  support  of  the  individual  members.  The  future  suc- 
cess of  the  movement  is  in  a  large  measure  bound  up  with 
the  proper  coordination  of  efforts  of  the  individual  com- 
panies with  the  efforts  and  policies  of  the  Farmers  State 
and  National  Grain  Dealers  Associations. 

The  question  might  also  be  asked  whether  the  central- 
ization of  efforts  as  exemplified  in  the  County  Unit  Plan  ^^ 
is  a  more  advantageous  method  of  conducting  country  co- 
operative grain  marketing  than  the  method  of  conducting 
it  on  the  basis  of  the  single  unit  type.  The  County  Unit 
Plan  makes  possible  economies,  some  of  which  cannot  be 
attained  when  local  companies  operate  as  complete  business 
units.  Under  the  County  Unit  Plan,  the  task  of  the  local 
managers  is  made  considerably  easier.  Some  of  their  func- 
tions are  taken  over  by  the  manager  of  the  central  or 
county  organization.  This  is  an  item  of  importance  in 
view  of  the  fact  that  the  managers  of  the  local  companies 
operating  as  complete  business  units,  must  be  men  of  high 
competence  and  character,  and  therefore,  not  so  easily  se- 
cured. The  centralized  accounting,  which  accompanies  the 
County  Unit  Plan,  is  an  advantage  of  the  same  order.  It 
enables  at  times  the  local  managers  to  perform  the  work 
at  the  elevator  without  the  aid  of  an  assistant  bookkeeper. 
The  manager  of  the  county  organization,  being  by  supposi- 


31  See  Chapter  III,  p.  56. 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING        129 

tion  a  man  of  more  highly  specialized  skill  than  the  riian- 
agers  of  the  companies  operating  as  individual  units,  can, 
therefore,  also  be  expected  to  make  better  bargains  in  the 
selling  of  grain,  the  purchasing  of  supplies,  and  the  pro- 
curing of  cars  for  shipment.  The  very  fact  that  he  can 
buy  and  sell  in  larger  quantities  than  the  local  managers, 
gives  him  superior  bargaining  power.  It  may  happen  that 
the  local  companies  desire  daily  telegraphic  reports  of 
market  conditions.  Under  the  County  Unit  Plan  it  is  neces- 
sary to  obtain  only  one  report  for  all  the  companies,  the 
general  manager  forwarding  the  information  to  the  locals. 
In  this  connection,  another  advantage  is  claimed.  The 
managers  all  receiving  the  same  information  and  consider- 
ing their  companies  as  part  of  the  county  organization, 
are  all  very  likely  to  pay  the  same  price  for  grain,  thus 
avoiding  competition  among  themselves,  or  buying  on  too 
close  margins.^-  Lastly,  it  is  claimed  for  the  County  Unit 
Plan  that  it  permits  a  reduction  in  the  number  of  boards  of 
directors  for  the  local  companies,  and  the  creation  of  an 
exceptionally  efficient  board  for  the  central  or  county  or- 
ganization. 

The  advantages  here  adduced  in  favor  of  the  County 
Unit  Plan,  do  not  seem  to  have  the  value  which  is  some- 
times given  them.  Thus  Mr.  W.  M.  Ramsey,  writing  in  the 
American  Cooperative  Journal,  stresses  prominently  the 
advantage  to  be  derived  from  reducing  the  number  of 
boards  of  directors.  He  is  describing  the  situation  in 
Mitchell  County,  Kansas,  where  there  were  twelve  cooper- 
ative associations  organized  according  to  the  County  Unit 
Plan.  Instead  of  twelve  they  have  only  one  board  of  di- 
rectors; instead  of  108,  they  have  only  nine  directors.  On 
the  supposition  that  each  association  would  have  its  own 
board  of  directors,  he  says :  "If  they  meet  only  five  times 
a  year  at  three  dollars  per  day,  the  cost  of  directors  would 
be  $1,620  annually  against  $135,  the  cost  of  a  single  board 
an  economy  of  $1,485."  ^^ 

Despite   this    alleged    economy,    it    is    highly    doubtful 


^^  American  Cooperative  Journal,  Vol.  12,  p.  377  (Jan.,  1917), 
33  Ibidem. 


130      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

whether  it  would  not  be  to  the  better  interests  of  the 
individual  companies  if  each  of  them  had  its  own  board  of 
directors.  Even  though  the  board  of  directors  of  the  cen- 
tral or  county  organization  is  more  efficient  than  would 
be  any  of  the  local  boards,  it  does  not  follow  that  they  can 
handle  all  the  business  of  all  the  companies  thus  associated, 
more  efficiently  than  it  would  be  handled  were  the  business 
of  each  company  under  the  jurisdiction  of  a  separate  board 
of  directors.  Nor  may  the  conditions  as  then  existing  in 
Mitchell  County  be  taken  as  representative.  This  would 
presuppose  that  a  board  of  directors,  specially  chosen  on 
account  of  their  executive  abilities,  would  be  willing  at 
the  same  price  to  perform  a  service,  requiring  much  closer 
and  more  detailed  attention  than  would  be  exacted  in  con- 
ducting the  business  of  an  individual  local  company.  Fur- 
thermore, it  would  presuppose  that  each  company  needs 
nine  directors.  It  is  doubtful  whether  there  are  compara- 
tively many  cooperative  elevator  companies  having  that 
number.  The  most  usual  number  of  directors  seems  to  be 
seven.  And  finally  local  companies  generally  experience 
no  difficulty  in  securing  directors  who  are  willing  to  per- 
form the  service  without  pecuniary  compensation.  The 
very  fact  that  the  community  places  confidence  in  their 
character  and  ability  is  to  them  a  sufficient  inducement  and 
reward. 

In  regard  to  daily  telegraphic  market  reports,  it  is  read- 
ily seen  that  the  local  companies  of  a  county  can  adopt 
that  self-same  plan  and  still  not  operate  on  the  county 
unit  basis  in  their  other  business  activities.  Whether  the 
elimination  of  competition,  claimed  as  an  advantage  in  this 
connection,  is  desirable,  may  be  very  much  questioned. 
It  need  only  be  said  that  if  the  local  companies  of  a 
county,  through  elimination  of  competition  among  them- 
selves, would  all  be  paying  the  same  price  for  grain,  but 
a  lower  one  than  that  paid  by  the  commercial  line  com- 
panies, the  independent,  and  other  dealers,  they  would 
soon  find  their  patronage  falling  off  at  a  rapid  rate.  If  a 
competitor  pays  higher  prices  for  grain  than  the  coopera- 
tive company,  even  the  members  will  be  led  to  patronize 


FACTORS  OF  SUCCESS  IN  COOPERATIVE  MARKETING       131 

the  former,  for  present  higher  prices  carry  a  greater  ap- 
peal than  does  the  prospect  of  future  dividends. 

The  County  Unit  Plan  is  at  a  distinct  disadvantage  in 
as  far  as  it  necessarily  withdraws  some  authority  from 
the  affiliated  locals.  This  phase  has  been  well  presented 
by  Mr.  Mehl,  "Favoring  the  local  single-unit  form  of  co- 
operative elevators  is  a  degree  of  community  pride  which 
usually  centers  around  these  organizations,  quite  inde- 
pendent of  the  services  rendered.  Local  government  car- 
ries a  special  appeal  to  the  American  citizen.  This  to  some 
extent  must  be  lessened,  if  not  entirely  lost,  where  control 
is  vested  in  a  body  of  directors  and  a  management  distantly 
situated.  In  many  sections  there  is  a  prejudice  against 
centralized  authority  which  is  not  easily  overcome."  ^* 

These  then  are  the  factors  which  condition  success  in 
local  cooperative  grain  marketing.  That  any  one  of  them  is 
absolutely  essential  to  success,  it  would  be  difficult  to  main- 
tain, but  the  absence  of  anyone  of  them  is  an  element  of 
weakness  and  unless  counteracted  by  the  other  factors 
mentioned  will  hasten  the  time  of  the  company's  failure. 


3*  Cooperative  Grain  Marketing,  p.  34. 


CHAPTER  VII 

SUMMARY  AND  CONCLUSION 

The  movement  discussed  in  the  preceding  pages  had  its 
inception  shortly  after  the  Civil  War,  through  the  activ- 
ities of  the  National  Grange,  a  fraternal,  social,  and  busi- 
ness organization,  designed  to  further  the  rural  reconstruc- 
tion necessary  upon  the  conclusion  of  that  great  conflict. 
When  this  organization  suffered  a  temporary  collapse  and 
when  other  associations,  founded  to  take  its  place,  lost  their 
immediate  industrial  character  by  seeking  to  obtain  their 
ends  through  political  action,  only  a  few  of  the  rural  co- 
operative business  enterprises  survived.  Lacking  initiative 
and  leadership,  and  chiefly  concerned  with  securing  lower 
transportation  rates,  the  farmers  of  the  North  Central 
States  during  the  decade  of  the  eighties  gave  little  con- 
sideration to  the  founding  of  such  joint  enterprises,  as  co- 
operative elevator  companies.  But  gradually  the  suspicion 
gained  ground  that  all  was  not  well  with  the  manner  in 
which  the  price  was  set  for  grain  at  country  stations. 
When  the  decade  of  the  nineties  came  to  a  close,  the  con- 
viction had  become  widespread  that  the  price  was  being 
manipulated  to  suit  the  whims  of  the  established  grain 
dealers.  As  a  form  of  protest  and  as  a  measure  of  relief, 
the  farmers  established  their  own  marketing  facilities  by 
organizing  marketing  associations,  owned  and  controlled 
by  themselves. 

They  found  the  securing  of  relief  through  these  organ- 
izations to  be  a  much  more  difficult  task,  however,  than  en- 
tertaining the  conviction  of  being  unfairly  treated.  Better 
equipped  by  previous  business  experience,  skilled  in  the 
art  of  drawing  patronage  to  themselves,  and  acting  in  con- 
sort, the  established  grain  dealers  readily  brought  many 
of  these  early  cooperative  elevator  companies  to  an  un- 
timely end  and  set  a  warning  thereby  to  other  commu- 
nities contemplating  the  formation  of  similar  enterprises. 

133 


134  THE   COOPERATIVE  ELEVATOR   MOVEMENT 

In  the  face  of  these  difficulties,  the  grain  growers  soon 
realized  that  only  by  supporting  their  own  ventures,  could 
they  hope  to  achieve  success.  The  "penalty  clause,"  by  re- 
minding them  of  this  necessity,  served  a  useful  purpose  and 
played  an  important  role  in  the  further  development  of  the 
movement.  On  the  other  hand,  the  continued  opposition  of 
the  established  grain  dealers  rendered  more  firm  their  con- 
viction of  unfair  prices  and  the  determination  of  overcom- 
ing this  evil  situation  through  their  own  associations. 

From  the  "enemy"  useful  things  could  also  be  learned. 
Even  as  the  grain  dealers  were  exercising  their  sway  over 
country  grain  marketing  in  a  large  measure  through  their 
state  grain  dealers*  associations,  so  the  grain  growers  con- 
cluded that  through  similar  associations  they  could  vastly 
strengthen  the  existing  cooperative  companies  and  provide 
the  means  whereby  new  ones  could  be  formed.  In  response 
to  this  conviction  they  organized  the  farmers'  state  grain 
dealers'  associations.  The  wisdom  of  such  a  step  has  been 
amply  proved;  the  results  expected  have  been  largely 
realized.  Better  business  methods  have  been  introduced 
into  the  companies  as  a  result,  and  communities  desirous 
of  organizing  similar  undertakings  have  been  given  the 
advantage  of  past  experience.  In  federating  these  state 
associations  into  a  national  association,  the  grain  growers 
were  again  but  following  the  example  of  the  established 
grain  dealers  in  utilizing  to  the  fullest  advantage  available 
collective  effort. 

The  cooperative  elevator  movement  has  enjoyed  a  steady 
growth  since  1905.  Many  of  the  companies  formed  since 
that  time  have  ceased  to  be,  but  there  has  been  a  con- 
siderable net  increase  from  year  to  year  so  that  at  present 
the  cooperatives  control  almost  20  per  cent  of  the  elevator 
facilities  and  handle  from  35  to  40  per  cent  of  the  total 
volume  of  grain  shipped  from  country  points  within  the 
region  of  the  North  Central  States. 

The  causes  of  this  growth  are  to  be  sought  in  the  mental 
attitude  of  the  grain  growers.  Suspicion  and  conviction 
persist  among  very  many  of  them  that  the  local  middle- 
man handling  grain,  exacts  too  large  a  margin  of  profit 


SUMMARY  AND  CONCLUSION  135 

for  the  services  he  performs.  Others  feel  that  there  are 
too  many  local  middlemen  for  the  volume  of  grain  to  be 
handled,  a  condition  that  unnecessarily  increases  the  cost 
of  handling.  They  see  a  solution  only  in  the  concentration 
of  patronage,  and  this  concentration  they  judge  to  be  most 
easily  effected  through  their  own  organizations.  Then  too, 
an  increasing  number  of  grain  growers  have  been  led  to 
the  view  that  the  marketing  of  their  product  is  as  much  a 
part  of  their  occupation  as  the  growing  of  it,  in  the  same 
way  as  the  manufacturer  considers  the  marketing  of  the 
things  he  produces  a  necessary  phase  and  function  of  his 
business.  These  attitudes,  fostered  in  a  large  measure  by 
the  agricultural  press  and  by  the  encouragement  of  the 
rural  business  organizations,  are  the  fundamental  and  con- 
stant factors  inducing  the  formation  of  new  cooperative 
elevator  companies,  and  thereby  contributing  to  the  general 
growth  of  the  movement. 

Although  the  primary  aim  of  these  companies  has  every- 
where been  the  same,  namely,  the  securing  for  their  mem- 
bers or  patrons  larger  net  returns  for  their  grain,  the 
structure  of  them  has  by  no  means  been  uniform.  In  gen- 
eral the  form  of  organization  adopted  has  varied  in  pro- 
portion to  the  ease  of  incorporating  under  the  laws  of  the 
various  states.  When  the  cooperative  elevator  movement 
first  took  on  prominence,  the  only  laws  under  which  the 
individual  companies  could  advantageously  incorporate, 
were  those  authorizing  ordinary  capital  stock  corporations. 
But  gradually  the  legislatures  of  the  North  Central  States 
enacted  laws  authorizing  true  cooperative  associations. 
Since  this  form  of  organization  harmonizes  best  with  the 
aim  of  cooperative  elevator  companies,  almost  all  of  them 
within  recent  years  have  adopted  this  form.  Many  of  the 
companies  begun  under  the  ordinary  corporation  laws,  have 
reorganized  in  order  to  take  advantage  of  the  truly  co- 
operative type.  In  this  way  the  cooperative  elevator  moTe- 
ment  has  linked  itself  not  only  in  aim  but  also  in  structure 
with  the  general  cooperative  movement  initiated  by  the 
Rochdale  Pioneers  of  England,  in  1844.  The  form  of 
organization  adopted  by  a  local  company  determines,  how- 


136      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

ever,  only  a  few  of  the  many  business  relations  among  its 
members.  It  is  the  function  of  the  by-la v^s  to  determine 
these  relations.  Their  nature  and  scope  are  always  ad- 
justed to  meet  local  conditions  and  legislative  requirements. 

Viewing  the  results  achieved  by  the  cooperative  elevator 
companies,  we  are  led  to  the  view  that  cooperative  grain 
marketing  is  a  form  of  enterprise  from  which  grain  grow- 
ers may  derive  large  economic  and  social  gains.  The  co- 
operatives have  been  most  important  factors  in  maintaining 
competitive  conditions  in  country  grain  buying.  In  price, 
margin,  dockage,  and  weight,  they  have  been  quite  as  liberal 
as  their  competitors.  They  have  secured  larger  net  profits 
than  their  competitors  if  the  comparative  and  extensive 
survey  of  the  Federal  Trade  Commission  may  be  taken  as 
representative   of   conditions   generally. 

Apart  from  strictly  financial  considerations,  the  co- 
operative elevator  companies  have  an  educational  and  a 
social  value  which  may  not  be  overlooked.  They  encourage 
initiative,  thrift,  and  the  habit  of  saving;  they  acquaint 
the  farmer  with  new  business  methods ;  develop  his  interest 
in  the  affairs  of  the  community  and  the  State;  and  teach 
him  in  a  practical  way  the  superior  efficiency  of  social  or 
collective  as  opposed  to  individual  effort. 

If,  therefore,  they  have  been  the  means  of  securing  worth 
while  economic  and  social  gains  for  their  patrons,  why 
has  not  the  growth  of  the  movement  been  even  greater? 
Why  has  not  the  rate  of  increase  been  even  higher?  The 
answer  to  these  questions,  like  the  explanation  of  the 
movement's  growth  itself,  must  be  sought  in  the  mental 
attitude  of  the  grain  growers.  Just  as  there  are  many,  con- 
vinced that  unfair  practices  exist  in  country  grain  buying 
and  that  cooperative  marketing  offers  the  solution  to  the 
difficulty,  so  there  are  others,  who,  if  they  think  that  unfair 
practices  do  exist,  do  not  look  upon  cooperative  marketing 
as  the  method  through  which  adequate  relief  can  be  found. 
Perhaps  they  consider  the  elimination  of  such  evils  to  be  a 
function  of  the  State.  There  are  others  who  look  upon 
themselves  as  individually  quite  capable  of  securing  the 
most  advantageous  bargains.    At  any  rate  they  view  indi- 


SUMMARY  AND  CONCLUSION  137 

vidual  effort  as  preferable  to  collective  action,  which  neces- 
sarily circumscribes  their  freedom  and  compels  them  to 
associate  themselves  with  others  whose  motives  they  are 
likely  to  distrust. 

The  same  classes  of  persons  have  prevented  most  of  the 
local  companies  from  securing  as  members  all  of  the  grain 
growers  of  the  community  in  question.  But  here  another 
class  should  be  added,  namely,  those  who  prefer  to  par- 
ticipate in  the  advantages  of  cooperative  marketing  with- 
out assuming  the  attendant  obligations.  Some  of  the  ad- 
vantages accruing  to  the  member  of  a  cooperative  elevator 
company,  necessarily  redound  also  to  the  advantage  of  the 
other  grain  growers  of  the  community.  In  so  far  as  the 
establishing  of  a  cooperative  elevator  company  may  result 
in  bringing  about  competitive  conditions  at  that  particular 
country  station,  all  of  the  growers  tributary  to  that  station 
are  equal  beneficiaries.  If  a  competitor  pays  a  higher 
price  for  grain  than  does  the  local  company,  the  non-mem- 
ber feels  free  to  give  his  patronage  to  the  concern  offering 
higher  prices.  If  the  situation  is  reversed,  he  feels  equally 
free  to  reverse  the  direction  of  his  patronage.  If  a  period 
of  financial  embarrassment  comes  over  the  company,  he 
has  no  fears  of  suffering  loss  on  invested  capital.  Hence, 
granting  the  existence  of  a  local  company,  the  non-mem- 
bers are  at  times  in  a  more  advantageous  position  than  the 
members  themselves,  although  if  there  were  no  such  com- 
pany all  the  farmers  of  the  community  might  suffer  a  loss 
through  lower  prices. 

In  as  far  then  as  the  local  company  may  have  been  a 
source  of  personal  advantage  to  the  non-member,  equity 
would  seem  to  demand  that  in  recompense  he  contribute 
toward  its  support.  But  considerations  of  this  sort  lead 
into  the  realms  of  the  ideal.  A  cooperative  elevator  com- 
pany, like  every  other  business  venture,  must  win  its  way 
by  proving  conclusively  its  superiority  over  other  concerns 
engaged  in  the  same  business.  When  it  demonstrates  this 
superiority  to  the  individiml,  it  will  also  elicit  his  support. 
Nor  should  the  fact  that  some  of  the  farmers  of  the  com- 
munity fail  to  associate  themselves  with  the  company  be 


138  THE   COOPERATIVE   ELEVATOR   MOVEMENT 

looked  upon  as  totally  undesirable,  even  though  they  may 
be  certain  of  deriving  benefit  from  such  affiliation.  The 
company  itself  will  be  a  stronger  business  unit  if  those 
who  are  not  in  sympathy  with  it,  do  not  become  members. 
Persons  of  this  type  most  easily  create  dissatisfaction, 
thereby  undermining  the  general  stability  of  the  com- 
pany. Aloofness  on  the  part  of  some  members  of  the 
community  will  stimulate  the  company  to  the  highest  busi- 
ness efficiency  in  order  to  be  successful  competitors  of  rival 
concerns;  and  the  fear  of  losing  its  own  members  or 
patrons  will  prevent  or  at  least  minimize  any  tendency  in 
the  managing  staff  to  deal  unfairly  with  any  of  them. 

This  leads  to  a  consideration  of  the  factors  that  con- 
dition success  in  conducting  a  cooperative  elevator  com- 
pany. The  three  most  prominent  factors  of  success  are, 
a  proper  form  of  organization,  efficient  management,  and  a 
loyal  membership.  The  advantages  of  the  truly  cooperative 
form  of  organization  over  the  ordinary  corporation,  are 
fundamental.  By  limiting  the  amount  of  stock  or  share 
capital  in  which  a  person  may  invest  and  restricting  the 
investment  to  the  current  rate  of  interest,  the  temptation 
of  investing  one's  funds  primarily  on  the  expectation  of 
high  dividends  is  removed.  By  allowing  each  member  only 
one  vote  regardless  of  the  variations  in  the  amount  of  cap- 
ital invested,  democratic  control  of  the  organization  is  as- 
sured. By  distributing  to  the  members  all  net  earnings  on 
the  basis  of  the  patronage  that  each  has  contributed,  the 
greatest  incentive  to  loyalty  is  offered.  Collectively,  these 
features  tend  to  make  of  the  elevator  company  a  producers* 
organization,  controlled  democratically,  and  existing  pri- 
marily for  their  benefit. 

The  cooperative  form  of  organization  provides,  however, 
only  the  fundamental  conditions  most  favorable  to  success. 
Without  efficient  management  the  form  of  organization 
will  be  of  little  avail.  At  best  it  can  only  postpone  the  time 
of  failure.  It  is  upon  efficient  management  m.ore  than 
upon  any  other  factor  that  the  success  of  cooperative  grain 
marketing  depends.  The  varied  nature  and  scope  of  the 
manager's    work    explain    the    intimate    relation   between 


SUMMARY  AND  CONCLUSION  139 

efRcient  management  and  success.  The  knowledge  that  he 
must  possess  of  the  grain  trade,  the  business  ability,  the 
tact,  the  patience  he  must  exercise,  the  impartiality  he 
must  show  to  all  patrons  despite  his  personal  feelings — 
these  are  the  features  which  make  the  qualities  of  the  man- 
ager and  his  work  so  pivotal  in  the  success  of  the  company. 

That  a  company  needs  the  support  of  its  members  in 
order  to  be  successful  scarcely  needs  proof,  and  appears  to 
be  but  citing  a  truism.  Only  by  making  use  of  the  system 
can  the  advantages  of  cooperative  marketing  be  secured. 
When  the  board  of  directors  proves  itself  worthy  of  the 
trust  that  the  community  has  placed  in  it;  when  the  man- 
ager is  imbued  with  the  spirit  of  service  for  the  patrons; 
when  they  in  turn  contribute  their  grain  unreservedly  to 
the  company,  and  when  all  feel  a  sense  of  social  solidarity, 
increased  by  virtue  of  association — only  then  has  the  com- 
pany the  loyalty  necessary  for  its  continued  success. 

In  the  light  of  these  demands  for  success  and  also  con- 
sidering the  factors  which  prompt  and  retard  the  organ- 
ization of  new  companies,  what  will  be  the  probable  future 
growth  of  the  movement?  Prophecy  is  always  hazardous, 
but  in  as  far  as  the  future  may  be  judged  from  the  past, 
the  movement  should  be  expected  to  grow  steadily  as  it 
has  done  during  the  last  fifteen  years.  In  judging  the 
future  in  this  instance,  however,  it  is  perhaps  more  im- 
portant to  look  to  the  present  than  to  the  past.  It  would 
seem  that  in  the  U.  S.  Grain  Growers,  Inc.,  a  new  organiza- 
tion has  arisen  which  will  greatly  accelerate  in  the  event  of 
success,  or  arrest  for  some  time,  in  the  event  of  failure, 
the  further  growth  of  the  movement.  There  seems  no  con- 
vincing reason  to  doubt  that  this  corporation  will  attempt 
terminal  cooperative  grain  marketing  on  a  vast  scale.  If 
the  initial  experiment  proves  successful,  the  attempt  will 
without  doubt  be  made  to  organize  local  aflfiliated  co- 
operative elevator  companies  in  every  important  grain- 
growing  community;  if  unsuccessful,  this  fact  will  receive 
wide  publicity,  financial  losses  on  the  part  of  local  com- 
panies and  individual  members  will  probably  occur;  dis- 
trust in  its  leaders  and  organizations,  and  in  the  value  of 


140      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

all  corporate  effort  so  laboriously  built  up,  will  revive  in  a 
large  section  of  the  rural  classes.  The  present  should, 
therefore,  be  looked  upon  as  a  critical  period  in  the  history 
of  the  cooperative  elevator  movement — critical  in  the  sense 
that  its  future  growth  or  retardation  is  closely  bound  up 
with  the  success  or  failure  of  the  plan  devised  by  the  "Com- 
mittee of  Seventeen"  and  finding  application  in  the  U.  S. 
Grain  Growers,  Inc. 

It  now  remains  to  consider  the  place  or  adaptability  of 
cooperative  grain  marketing  in  a  general  program  of  rural 
betterment.  When  in  1909  the  late  President  Roosevelt 
transmitted  to  the  Senate  the  Report  of  the  Country  Life 
Commission,  he  issued  the  following  statement:  "Our 
civilization  rests  at  bottom  on  the  wholesomeness,  the  at- 
tractiveness, and  the  completeness,  as  well  as  on  the  pros- 
perity of  life  in  the  country."  In  these  words  he  at  once 
epitomized  the  fundamental  needs  of  American  agricultural 
and  rural  life  as  also  the  recommendations  of  the  commis- 
sion. Since  that  time  there  has  been  a  renewed  interest 
in  the  rural  problem  of  this  country,  and  the  aims  toward 
its  solution  have  been  gathered  in  the  slogan :  better  f arm- 
ingj  better  business,  better  living.  Both  the  statement  of 
the  President  and  its  more  popular  equivalent  aim  to  in- 
culcate the  importance  of  promoting  agriculture  not  merely 
for  the  sake  of  the  individual  farmer  or  of  the  agricultural 
classes,  but  also  as  a  means  of  promoting  national  safety 
and  stability.  Both  statements  recognize  likewise  the  rural 
problem  as  not  merely  one  of  increasing  the  farmer's  in- 
come but  also  of  securing  improved  production,  and  better 
living  conditions  for  the  tillers  of  the  soil. 

In  formulating  a  rural  policy  on  the  basis  of  these  needs, 
cooperative  marketing  finds  a  ready  place.  Cooperative 
marketing  approaches  the  rural  problem  from  the  stand- 
point of  "better  business,"  but  it  does  not  thereby  render 
more  difficult  of  solution  the  problems  of  "better  farming" 
and  "better  living."  By  securing  for  the  grain  grower  a 
larger  net  income,  it  frequently  provides  the  necessary 
foundation  for  better  farming  and  better  living.  It  in  no 
way    depresses    but   on    the    contrary   it   stimulates   the 


SUMMARY  AND  CONCLUSION  141 

farmer's  initiative  to  self-help.  In  this  it  is  in  thorough 
accord  with  the  American  spirit  and  traditions.  Local  co- 
operative grain  marketing  is  indeed  no  panacea  for  all  the 
marketing  problems  facing  the  grain-growing  section  of 
our  rural  population,  but  it  does  contribute  toward  the  solu- 
tion of  some  of  them.  It  is  a  form  of  enterprise  deserving 
of  encouragement  and  further  extension. 


Appendix  A 

ARTICLES  OF  INCORPORATION 

of  the Cooperative  Elevator  Company 

of Minnesota   ( * ) . 

We,  the  undersigned  residents   of County, 

State  of  Minnesota,  do  hereby  associate  ourselves  together 
for  the  purpose  of  becoming  incorporated  as  a  cooperative 
association  under  the  provisions  of  Chapter  fifty-eight  (58) 
of  the  Revised  Laws  of  Minnesota,  1913,  all  acts  amenda- 
tory thereof  and  supplementary  thereto;  and  to  that  end 
we  do  hereby  adopt  and  sign  the  following  Articles  of  In- 
corporation : 

Article  I 


The  name  of  this  corporation  shall  be  the, 
Cooperative  Elevator   Company. 


Article  II 

The  principal  place  of  business  of  this  corporation  shall 
be Minnesota. 

Article  III 

The  purpose  of  this  corporation  shall  be  to  buy,  sell,  and 
store  all  kinds  of  farm  products,  grains,  seeds,  coal,  lumber, 
building  materials,  farm  machinery,  twine,  tile,  fence,  and 
all  such  articles  as  may  properly  be  handled  to  the  inter- 
ests of  the  stockholders  of  this  corporation;  and  to  pur- 
chase, erect,  maintain,  and  control  warehouses  and  ele- 
vators for  the  storage  of  such  products ;  and  to  buy,  lease, 
and  sell  such  property  as  may  be  needed  for  the  transaction 
of  the  business  of  this  corporation. 

Article  IV 
The  time  of  commencing  business  for  this  corporation 

shall  be 19 .... ,  and  the  period  of  its 

duration  shall  be  twenty  years. 


(♦)  Except  for  very  minor  changes,  these  Articles,  as  also  the  Form  of 
By-laws,  are  taken  verbatim  from  L.  D.  Weld,  Opus  cit.  pp.  15-21. 

143 


144      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

Article  V 
The  names  and  places  of  residence  of  the  persons  form- 
ing this  corporation  are: 

(Enter  names  on  separate  lines). 

Article  VI 

The  management  of  this  corporation  shall  be  vested  in  a 
board  of  directors  composed  of  seven  members. 

Officers  of  this  corporation  shall  be  a  president,  vice- 
president,  secretary,  and  treasurer. 

The  board  of  directors  shall  be  composed  of  these  four 
officers  ex  officio  and  three  other  members. 

All  officers  and  directors  shall  be  elected  by  the  members 
in  annual  meeting  assembled;  provided  that  the  four  offi- 
cers shall  be  elected  annually  and  that  the  other  three 
directors  shall  be  elected  at  the  first  annual  meeting,  one  to 
serve  for  one  year,  one  for  two  years,  and  one  for  three 
years,  so  that  thereafter  there  shall  be  one  elected  each  year. 
The  officers  and  directors  elected  at  the  time  of  organiza- 
tion shall  hold  office  until  the  next  annual  meeting. 

Names  and  addresses  of  the  first  board  of  directors  are 
as  follows: 

(Enter  names  on  separate  lines). 

Article  VII 
No  person  shall  be  entitled  to  more  than  one  vote,  re- 
gardless of  the  number  of  shares  of  stock  he  may  own. 

Article  VIII 
The  amount  of  capital  stock  of  this  corporation  shall  be 
ten  thousand  dollars  ($10,000),  which  shall  be  paid  in,  in 
money  or  property  or  both,  in  such  manner,  at  such  time, 
and  in  such  amounts  as  the  board  of  directors  shall  order. 
The  capital  stock  shall  be  divided  into  five  hundred  (500) 
shares  of  the  par  value  of  twenty  dollars  ($20)  each. 

Article  IX 
The  highest  amount  of  indebtedness  or  liability  to  which 
this  corporation  shall  at  any  time  be  subject  shall  be  a  sum 
not  to  exceed  the  actual  paid-in  capital  stock. 

In  testimony  whereof  we  have  hereunto  set  our  hands, 

this day  of 19 ... . 

(Enter  names  on  separate  lines). 
Signed,  sealed,  and  delivered  in  presence  of 


County  of 

State  of  Minnesota. 

On  this day  of .19 ,  person- 
ally appeared  before  me : 

(Enter  names  here). 


FORM  OF  INCORPORATION  145 

to  me  known  to  be  the  persons  named  in  and  who  executed 
the  foregoing  Certificate  of  Incorporation,  and  each 
acknowledged  that  he  executed  the  same  as  his  free  act  and 
deed,  for  the  uses  and  purposes  therein  expressed. 


Notary  Public. 

Appendix  B 

BY-LAWS 

of  the Cooperative  Elevator  Company. 

Article  I 

Section  1.  The  annual  meeting  of  this  corporation  shall 
be  held  on  the  second  Saturday  of  June  of  each  year. 

Sec.  2.  Ten  days*  notice  shall  be  given  of  all  meetings 
of  the  shareholders  by  publishing  notice  thereof  in  the  local 
paper,  and  by  circular  notice  mailed  to  each  stockholder. 

Sec.  3.  The  directors,  at  the  written  request  of  twenty- 
five  shareholders,  may  call  a  special  meeting  of  the  share- 
holders; the  notice  of  said  special  meeting  to  contain  a 
statement  of  the  business  to  come  before  the  same. 

Sec.  4.  The  president  of  the  corporation  shall  preside  at 
all  meetings  of  the  shareholders,  and  shall  cast  the  deciding 
vote  in  all  cases  of  a  tie.  Each  shareholder  shall  have  only 
one  vote  and  no  one  will  be  allowed  to  vote  by  proxy.  All 
officers  shall  be  elected  by  ballot. 

Sec.  5.  Twenty-five  (25)  per  cent  of  all  members  shall 
constitute  a  quorum  at  all  meetings  of  shareholders. 

Sec.  6.  The  board  of  directors  shall  hold  at  least  four 
regular  meetings  each  year,  one  in  each  of  the  months  of 
September,  December,  March,  and  June,  the  exact  time  and 
place  to  be  determined  by  the  president. 

Sec.  7.  Special  meetings  of  the  board  of  directors  may 
be  called  by  the  president  or  any  three  of  said  board,  and 
notice  of  such  meetings  shall  be  given  each  member  by  mail. 

Sec.  8.  No  business  except  that  mentioned  in  call  for 
special  meeting  shall  receive  final  action  at  said  meeting. 
Five  directors  shall  constitute  a  quorum  at  all  meetings  of 
the  board  of  directors  and  a  majority  vote  of  the  members 
present  shall  decide  all  questions  except  the  transfer  of 
grounds  and  buildings,  which  shall  require  the  presence  of 
the  whole  board  and  a  majority  vote  thereof. 

Article  II 
Board  of  Directors — Duties  and  Powers 
Section  1.     The  board  of  directors  shall  appoint  and  fix 
salaries  or  compensation  of  all  officers,  agents,  and  em- 


146      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

ployees  of  the  corporation,  except  as  hereinafter  specified, 
and  have  power  to  fill  all  vacancies  in  the  board  or  its 
officers. 

Sec.  2.  The  board  of  directors  shall  at  every  annual 
meeting  of  the  shareholders  render  a  full  detailed  account 
of  all  business  and  property  of  the  corporation  during  the 
year.  They  shall  also  render  a  similar  account  at  any 
special  meeting  of  the  shareholders  when  required  to  do  so 
by  a  vote  of  the  shareholders,  a  reasonable  time  being  given 
to  prepare  the  same. 

Sec.  3.  The  board  of  directors  shall  audit  all  accounts 
at  their  regular  meetings  at  least  four  times  a  year,  and 
shall  have  the  books  audited  at  least  once  a  year  by  an  ex- 
pert and  qualified  auditor  who  is  not  a  stockholder  of  the 
company,  such  audit  to  take  place  during  the  thirty  (30) 
days  preceding  the  annual  meeting. 

Sec.  4.  The  board  of  directors  shall  have  power  to  do 
such  acts  and  adopt  such  measures,  not  inconsistent  with 
the  Articles  of  Incorporation,  as  they  shall  deem  best  cal- 
culated to  promote  the  interests  of  the  shareholders,  and  to 
that  end,  shall  from  time  to  time,  prescribe  such  rules  and 
regulations  for  the  management  of  the  business  of  the 
corporation  as  they  deem  expedient. 

Sec.  5.  Each  member  of  the  board  of  directors  shall  re- 
ceive two  dollars  ($2)  for  each  regular  or  special  meeting 
he  attends. 

Article  III 

Duties  of  Officers 

Section  1.  The  president  shall  be  the  presiding  officer 
at  all  meetings  of  the  board  of  directors,  and  of  the  corpora- 
tion. He  shall  be  ex  officio,  member  of  all  committees.  He 
shall  sign,  execute,  and  deliver  all  deeds  or  conveyances  of 
real  estate  which  the  directors  may  order  executed,  and 
shall  sign  all  certificates  of  stock  of  the  corporation,  and 
perform  such  other  duties  as  the  board  may  direct.  In 
case  of  absence,  inability  to  act,  or  death  of  the  president, 
the  vice-president  shall  discharge  the  duties  of  the  presi- 
dent until  his  return,  or  until  his  disability  is  removed  or 
the  vacancy  filled. 

Sec.  2.  The  secretary  shall  attend  all  meetings  of  the 
shareholders  and  board  of  directors,  and  keep  in  a  suitable 
book  the  minutes  of  said  meetings.  He  shall  have  charge  of 
the  records  and  papers  of  the  corporation;  shall  have 
charge  of  and  affix  the  corporate  seal  to  all  such  documents 
as  may  require  attestation;  shall  issue  notices  of  all  meet- 
ings;  shall  countersign  all  certificates   of   stock   and   all 


FORM  OF  BY-LAWS  147 

orders  drawn  on  the  treasurer ;  and  perform  all  duties  gen- 
erally incident  to  the  office  of  secretary.  His  records  shall 
be  open  to  inspection  of  any  of  the  directors  at  all  proper 
business  hours. 

Sec.  3.  The  treasurer  shall  receive  all  money  paid  to  the 
corporation  and  give  his  receipt  therefor;  he  shall  pay  out 
the  same  under  direction  of  the  board  of  directors,  and  he 
shall  make  such  disposition  of  the  funds  on  hand  as  the 
board  of  directors  shall  determine.  He  shall  keep  in  a  suit- 
able book  a  true  account  of  all  transactions.  He  shall  make 
a  full  detailed  report  of  all  receipts  and  disbursements  to 
the  board  of  directors  at  their  regular  quarterly  meetings, 
and  an  annual  report  of  the  same  to  the  shareholders  at 
the  annual  meeting  thereof.  The  books  of  the  treasurer 
shall  at  all  times  be  open  to  the  inspection  of  the  directors. 
He  shall  also  furnish  bonds  to  the  amount  of  from  three 
thousand  dollars  ($3,000)  to  ten  thousand  dollars  ($10,- 
000)  at  the  discretion  of  the  board  of  directors. 

Sec.  4.  The  manager  shall  keep  a  true  record  of  all  busi- 
ness transacted  by  him  and  carefully  keep  all  correspond- 
ence of  importance.  Said  records  and  correspondence 
shall  at  all  times  be  open  to  inspection  by  any  member 
of  the  board  of  directors,  or  any  person  the  board  may  di- 
rect or  appoint  to  investigate  said  books  and  correspond- 
ence, and  the  general  manager  shall  at  all  times  give  any 
information  the  directors  may  ask,  and  report  the  condi- 
tion of  the  affairs  of  the  corporation  to  the  board  of  di- 
rectors at  their  regular  meetings,  make  a  daily  report  to 
the  treasurer  of  all  business  transacted,  and  an  annual  re- 
port to  the  president  for  the  annual  meeting  of  the  stock- 
holders five  days  before  such  meeting  each  year;  shall  call 
in  all  moneys  due  or  belonging  to  the  corporation  except 
stock  subscriptions  and  pay  the  same  immediately  to  the 
treasurer,  taking  his  receipt  therefor ;  shall  make  drafts  on 
the  treasurer  for  all  commodities  handled  by  him,  stating 
what  they  are  given  for;  shall  perform  all  other  duties 
which  the  board  of  directors  may  direct,  and  shall  give 
bonds  to  the  amount  of  three  thousand  dollars  ($3,000)  to 
fifteen  thousand  dollars  ($15,000),  at  the  discretion  of  the 
board  of  directors,  for  the  faithful  performance  of  his 
duty. 

Article  IV 
Stock 

Section  1.  No  member  shall  be  entitled  to  hold  more 
than  five  shares  of  stock  at  any  one  time. 


148       THE  COOPERATIVE  ELEVATOR  MOVEMENT 

Sec.  2.  In  case  of  the  sale  of  stock  by  any  member,  the 
corporation  shall  have  the  first  acceptance  or  refusal  of 
such  stock,  after  which  the  stock  may  be  sold  to  any  person 
eligible  to  membership  as  shall  be  determined  by  the  board 
of  directors. 

Sec.  3.  All  applications  for  stock  must  be  submitted  to 
and  approved  by  the  board  of  directors,  before  such  stock  is 
issued.  The  certificates  of  the  capital  stock  of  this  com- 
pany shall  be  issued  in  such  form  as  the  board  of  directors 
shall  direct,  and  shall  be  numbered  and  registered  as  issued. 
They  shall  exhibit  the  holder's  name,  the  number  of  shares, 
and  the  number  of  certificates,  and  shall  be  signed  by  the 
president,  and  countersigned  and  sealed  by  the  secretary. 
Any  person  who  owns  one  or  more  shares  of  stock  shall  be 
deemed  a  member  of  the  corporation. 

Sec.  4.  Transfers  of  stock  shall  be  made  only  on  books 
of  the  company  in  the  presence  of  the  secretary  or  other 
authorized  officers  of  the  company,  either  by  the  holder  in 
person  or  by  his  attorney,  and  in  case  of  transfer  by  an  at- 
torney, executor,  administrator,  guardian,  or  other  legal 
representative;  duly  authenticated  evidence  of  their  au- 
thority to  act  shall  be  produced  to  the  proper  officers. 

Sec.  5.  Stock  shall  be  assessable,  but  there  shall  be  no 
assessment  levied  at  any  ttme  unless  at  a  regular  or  special 
meeting  of  the  stockholders,  and  no  assessment  can  be  made 
at  any  such  meeting  unless  each  stockholder  has  been  duly 
notified  by  a  written  notice  thereof  ten  (10)  days  prior  to 
such  regular  or  special  meeting  at  which  time  an  assess- 
ment shall  be  levied. 

Article  V 
Distribution  of  Dividends  and  Profits 

The  proceeds  of  the  business,  after  the  payment  of 
operating  expenses  and  interest  on  indebtedness,  shall  be 
distributed  as  follows: 

1.  Dividends  not  to  exceed  six  (6)  per  cent  on  sub- 
scribed capital  stock,  at  the  discretion  of  the  directors. 

2.  Of  the  remaining  balance  there  shall  be  set  aside 
each  year  as  a  surplus  or  reserve  fund,  twenty  (20)  per 
cent,  until  such  surplus  equals  forty  (40)  per  cent  of  the 
paid-in  capital;  said  sum  to  be  used  in  payment  for  im- 
provements and  new  buildings,  to  make  up  losses,  and  for 
such  other  purposes  as  the  board  of  directors  shall  de- 
termine. 


FORM  OF  BY-LAWS  149 

3.  The  remaining  balance  shall  be  divided  on  the  basis 
of  the  amount  of  business  transacted  with  the  corporation 
by  individual  patrons,  provided  that  non-sharing  patrons 
shall  receive  only  one-half  the  amount  received  by  share- 
holders per  unit  of  business  transacted;  and  provided  also 
that  this  amount  in  the  case  of  non-shareholders  shall  not 
be  paid  out  but  shall  be  credited  to  said  non-shareholder 
without  interest  until  a  sufficient  amount  to  pay  for  one 
share  has  accumulated,  whereupon  a  share  shall  be  issued 
as  fully  paid  to  said  non-shareholding  patron  entitling  him 
to  all  the  privileges  of  a  member  of  this  corporation. 

Article  VI 
Speculation 
All  stored  grain  shipped  out,  all  grain  bought  or  held, 
and  contracts  with  growers  involving  future  delivery  of 
actual  grain,  shall  be  properly  hedged  in  the  "futures" 
market;  otherwise  there  shall  be  no  buying  or  selling  of 
"options"  or  "futures." 

Article  VII 

Neglect  on  the  Part  of  Officers 

Any  officer  who  fails  to  perform  his  duties  as  prescribed 
in  these  by-laws  may  be  removed  from  office  by  the  board 
of  directors,  and  any  officer  making  a  contract  not  author- 
ized by  the  board  of  directors  shall  be  liable  to  dismissal 
from  office  and  such  officer  and  bondsman  shall  be  liable  to 
the  full  amount  of  said  contract. 

Article  VIII 
Amendments 
These  by-laws  may  be  amended  at  any  regular  or  special 
meeting  by  a  two-thirds  vote  of  the  meiribers  present  and 
voting  at  such  meeting,  provided  due  notice  is  given  of 
proposed  amendments  to  all  members  at  least  ten  (10)  days 
before  such  meeting. 


150      THE  COOPERATIVE  ELEVATOR  MOVEMENT 


BIBLIOGRAPHY 

American  Cooperative  Manager,  Vol.  1-6  (1916-21),  Chicago. 

American  Cooperative  Journal,  Vol.  1-17    (1905-21),  Chicago. 

American  Farm  Bureau  Federation,  Agriculture  and  the  New  Day,  Wash- 
ington, 1921. 

Andrews,  Frank,  The  Reduction  of  Waste  in  Marketing,  pp.  165-176, 
Yearbook  U.  S.  Dept.  of  Agric,  1911. 

Austin,  Charles  and  Wehrwein,  George,  Cooperation  in  Agriculture,  Mar- 
keting, and  Rural  Credits,  Bulletin  of  the  University  of  Texas,  No.  355, 
Austin,  1914. 

Bailey,  L.  H.,  The  Country  Life  Movement  in  the   United  States,  N.  Y., 

1911. 
Bailey,    L.    H.,    Cyclopedia    of   American    Agriculture,    Vol.    4th,    N.    Y., 
1909. 
Butterfield,  Kenyon  L.,  Farmers'  Social  Organisations,  pp.  289-297. 
Fetter,  Frank  A.,  The  Theory  of  the  Middleman,  pp.  239-241. 
Hibbard,    B.    H.,    Cooperation    in    the    Grain    Elevator    Business,    pp. 

267-269. 
Kiely,  P.  M.,  The  Middleman  in  Practice,  pp.  241-243. 
Moorman,  James   B.,   Business  Cooperative  Organisations  in  Agricul- 
ture, pp.  255-265. 
Barrett,  Charles,  The  Mission,  History  and  Times  of  the  Farmers'  Union, 

Nashville,  1909. 
Basset,  C.  E.,  and  Jesness,  O.  B.,  Cooperative  Organisation  By-laws,  Bul- 
letin 541,  U.  S.  Dept.  of  Agric,  1918. 
Basset,  C.  E.,  Moomaw,  C.  W„  and  Kerr,  W.  H.,  Cooperative  Marketing 
and  Financing  of  Cooperative  Marketing  Associations,  Yearbook,  U.   S. 
Dept.  of  Agric,  pp.  185-210,  1914. 
Bemis,  Ed.  W.,  Cooperation  in  the  Middle  States,  in  "Johns  Hopkins  Uni- 
versity  Studies   in    Political   and    Social    Science,"   Vol.   6th,    Baltimore, 
1888. 
Black,  John  D.  and  Robotka,  Farmers'  Cooperation  in  Minnesota,  1913-17, 

The  University  of  Minn.  Agric  Exp.  Sta.,  Bull.  184,  St,  Paul,  1919. 
Bliss,   William   D.    (Editor-in-Chief),    The   New   Encyclopedia   of   Social 

Reform,  New  York,  1908. 
Bowen,  J.  Chester,   Wheat  and  Flour  Prices  from  Farmer   to   Consumer, 

U.  S.  Bureau  of  Labor  Statistics,  Bulletin,  Whole  Number  130.  1913. 
Brief  History  of  the  Farmers'  Cooperative  Grain  Dealers  Association  of 

Iowa,  Eagle  Grove. 
Brooks,  T.  J.,  Markets  and  Rural  Economics.  New  York,  1914. 
Buck,   Solon  J.,    The   Granger  Movement,  "Harvard   Historical    Studies," 

Vol.  19th,  1913. 
Butterfield,  Kenyon  L.,  Chapters  in  Rural  Progress,  Chicago,  1908. 
The  Farmer  and  the  New  Day,  New  York,  1919. 
The  Grange,  pp.  231-242,  in  the  Forum,  Vol.  31st  (April,  1901). 
Carver,  T.  N.,  Principles  of  Rural  Economics,  New  York,   1911. 

The  Organisation  of  Rural  Interests,  pp.  239-258,  Yearbook  of  U.   S. 
Dept.  of  Agric,  1913. 
Cance.  Alexander  E..    The  Farmers'  Cooperative  Exchange,  Mass.   Agric 

College,  Amherst,  1914. 
Commons,    John    R..    and    others.    A    Documentary    History    of    American 

Industrial  Society,  Vol.  10th.  Cleveland,  1911. 
Cooperation  Among  Farmers  and  Consumers,  Reconstruction  Pamphlet  of 
the   National   Catholic  War    Council,   Washington,    1920. 


BIBLIOGRAPHY  151 

Cooperation  in  Kansas,  Kansas  State  Board  of  Agric,  19th  Biennia|  Re- 
port, Topeka,  1915. 

Coulter,  John  L.,  Cooperation  Among  Farmers,  New  York,  1917. 

Cooperation  in  the  Marketing  of  Agricultural  Products,  Amer.   Econ. 
Assoc.  Quarterly,  3d  ser.   10   (April,   1909). 

Crissey.  Forrest,  The  Farmers'  Equity  Union,  in  the  "Country  Gentleman," 
August  2,  1919,  Greenville,  111. 

Cross,  I.  B.,  Cooperation  in  California,  pp.  535-44,  Amer.  Econ.  Review, 
(September.  1911). 

Cumberland,  W.  W.,  Cooperative  Marketing ;  Its  Advantages  as  Exempli- 
fied in  the  California  Fruit  Grozvers'  Exchange,  Princeton,  1917. 

Drayton,  C.  O.,  Farmers  Must  Be  Cooperators,  Greenville,  111.,  1914. 

Drew.  Frank,  The  Present  Farmers'  Movement,  pp.  282-310,  in  "Pol.  Sci. 
Quarterly"  (June.  1891). 

Duncan,  C.  S.,  Marketing,  Its  Prohleins  and  Methods,  New  York,  1920. 

Dunning,  N.  A.  (Editor-in-Chief),  The  Farmers'  Alliance  History  and 
Agricultural   Digest.   Washington,    1891. 

Durand  and  Jensen,  Farmers'  Elevators  in  Minnesota,  1914-15,  University 
of  Minn.  Agric.  Exp.  Sta.  Bulletin  164,  St.  Paul. 

Equity  Union  Exchange,  Vol.  9   (1913-1922),  Greenville.  111. 

Erdmann,  H.  E.,  The  Farmers'  Elevator  Movement  in  Ohio,  Bulletin  331, 
Ohio  Agric.  Exp.  Sta.,  Wooster,  1918. 

Fay,  C,  R.,  Cooperation  at  Home  and  Abroad,  New  York. 

Filley,  H,  C,  Cooperation,  Extension  Bulletin  31,  Agric.  Exp.  Sta.,  Lin- 
coln. Neb.,  1915. 

Ford,  James,  Cooperation  in  New  England.  New  York,  1913. 

Gillette,  John,  Introduction  to  Rural  Sociology,  New  York,  1913. 

.Goldenweiser.  E.  A.,  The  Farmer's  Income,  Bulletin  746,  U.  S.  Dept.  of 
Agric,  1916. 

Harris,  Siebel,  Methods  of  Marketing  the  Grain  Crop,  in  "Annals  of  the 
American  Acad,  of  Pol.  and  Soc.  Science,  Vol.  38th   (September,  1911). 

Hibbard,  B.  H.,  The  Marketing  of  Agricultural  Products,  New  York,  1921. 

Hibbard.  B.  H.,  and  Hobson,  Asher,  Cooperation  in  Wisconsin,  1917,  Bul- 
letin 282.  Agric.  Exp.  Sta.,  Madison,  1917. 

Holmes.  G.  K..  Systems  of  Marketing  Farm  Products  and  Demand  for 
Such  Products  at  Trade  Centers,  U.  S.  Dept.  of  Agric,  Report  98,  1913. 

House  Doc.  1271,  63d  Cong.,  3  sess.,  "Prices  of  Wheat  to  Producers  in 
Kansas,  etc." 

Huebner,  Grover  G..  A qricultural  Commerce,  New  York,  1915. 

Humphrey,  J.  R.,  and  Kerr,  W.  H.,  A  System  of  Accounts  for  Cooperative 
Elevators.  Bulletin  236.  U.  S.  Dept.  of  Agric,  1915. 

Patronage   Dividends   ift    Cooperative   Grain   Companies,   Bulletin   371, 
U.  S.Dept.  of  Agric,  1916. 

Jesness,  O.  B.,  Cooperative  Marketing,  Bulletin  1144,  U.  S.  Dept.  of  Agric, 
1920. 

Jesness,  O.  B.,  and  Kerr.  W.  H.,  Cooperative  Purchasing  and  Marketing 
Orqanizatinns  amnvn  Farmers  in  the  United  States,  Bulletin  547,  U.  S. 
Dept.  of  Agric,  1917. 

Johns  Hopkins  University  Studies  in  Historical  and  Political  Science,  Vol. 
6th,  History  of  Cooperation  in  the  United  States.  Baltimore,  1888. 

Jones.  Franklin  D..  The  Status  of  Farmers'  Cooperative  Associations  under 
Federal  Law,  pp.  595-603,  in  "Journal  of   Pol.   Economy"    (July,   1921). 

Kenning.  Charles,  Question  Book  regarding  the  Proposed  Grain  Market- 
ing Plan  of  the  Committee  of  Seventeen,  1921. 

Kerr.  W.  H.,  and  Nahstoll.  G.  A.,  Cooperative  Organization  Business 
Methods.  Bulletin  168.  U.  S.  Dept.  of  Agric.  1915. 

Kile.  Orville  M.,  The  Farm  Bureau  Movement,  New  York,  1921. 


152  THE   COOPERATIVE  ELEVATOR   MOVEMENT 

King,  Clyde,  Can  the  Cost  of  Distribution  be  Reduced,  pp.  199-224,  in 
"Annals  of  the  Amer.  Acad,  of  Pol.  and  Soc.  Science,"  Vol.  48th  (1913). 

LaFollette,  Robert  M.,  The  Grain-buying,  Elevating  and  Forwarding  Busi- 
ness, Cong.  Record,  Vol.  40,  pt.  10,  59th  Cong.,  1st  sess.,  pp.  9090-9097 
(June  25,  1906). 

Langer,  William,  The  Non-partisan  League;  its  Birth,  Activities  and 
Leaders,  Mandan,  N.  D.,  1920. 

Livingston,  George,  and  Seeds,  K.  B.,  Marketing  Grain  at  Country  Points, 
Bulletin  558,  U.  S.  Dept.  of  Agric,  1917. 

Lloyd,  John  William,  Cooperative  and  other  Organised  Methods  of  Mar- 
keting California  Horticultural  Products,  University  of  Illinois  Studies 
in  the  Social  Sciences,  Vol.  8th,  No.  1,  1919,  Urbana. 

Manual  on  Cooperation,  Circular  84,  N.  Y.  State  Dept.  of  Agric,  Albany, 
1914. 

Matson,  C.  H.,  A  Grain  Buyers'  Trust,  in  "American  Review  of  Reviews," 
Vol.  25th  (February,  1902). 

Mehl,  J.  M.,  Cooperative  Grain  Marketing,  A  Comparative  Study  of 
Methods  in  the  United  States  and  Canada,  Bulletin  937,  U.  S.  Dept.  of 
Agric,  1921. 

Mehl,  J.  M.,  and  Jesness,  O.  B.,  The  Organisation  of  Cooperative  Grain 
Elevator  Companies,  Bulletin  860,  U.  S.  Dept.  of  Agric,  1920. 

Melton,  Leroy,  The  Farmers'  Equity  Union,  Plan  and  Purpose,  Greenville, 
111. 

Nourse,  Edwin  G.,  Agricultural  Economics,  Chicago,  1916. 

Harmonising   the  Interests   of  Farm  Producer  and    Town   Consumer, 
pp.  625-658,  in  "Journal  of  Pol.  Economy"  (October,  1920). 

Palgrave,  R.  H.,  Dictionary  of  Political  Economy,  New  York,  1896. 

O'Hara,  Frank,  Introduction  to  Economics,  New  York,  1917. 

The  Non-partisan  League   of  North   Dakota,  A   Study   and   Outlook, 
St.  Louis,  1920. 

Outlined  Explanation  of  the  Proposed  Grain  Marketing  Plan  by  the  Com- 
mittee of  Seventeen,  Chicago,  1920. 

Powell,  Harold  G.,  Cooperation  in  Agriculture,  New  York,  1919. 
Proceedings  of  the  First  Annual  Conference  of  Cooperative  Associations, 

Bulletin  63,  New  York  Dept.  of  Agric,  Albany,  1914. 
Pub.  Doc.  No.  50,  65th  Cong.,  "The  Revenue  Act  of   1917,"  Washington, 

1917. 
Pub.  Doc.  No.  254,  65th  Cong.,  "The  Revenue  Act  of  1918,"  Washington, 

1918. 
Pub.  Doc.  No.  66,  67th  Cong.,  "The  Future  Trading  Act,"   Washington, 

1921. 

Refsell,  O.  N.,  The  Farmers'  Elevator  Movement,  pp.  872-895,  969-992,  in 
"Journal  of    Pol.   Econ.,"   Vol.   22d    (November   and    December,    1914). 

Regulations  45  Relating  to  the  Income  Tax  and  War  Profits  and  Excess 
Profits  Tax  under  the  Revenue  Act  of  1918  (1920  edit.)  Washington,  1921. 

Report  of  the  Industrial  Commission,  Vol.  6th,  1900,  Washington. 

Report  of  the  Federal  Trade  Commission  on  the  Grain  Trade,  Wash- 
ington,  1920. 

Vol.  I,  Country  Grain  Marketing. 

Vol.  II,  Terminal  Grain  Markets  and  Exchanges. 

Vol.  V,  Future  Trading  Operations  in  Grain. 

Report  of  the  First  National  Conference  on  Marketing  and  Farm  Credits, 
Chicago,  1913. 

Myers,  Millard  R.,  Some  Grain  Marketing  Problems,  pp.  54-57. 
Spillman,  W.  J.,  Marketing  Farm  Products,  pp.   109-121. 


BIBLIOGRAPHY  153 

Report  of  the  Third  National  Conference  on  Marketing  and  Farm  Credits^ 
Frazier,   Lynn  J.,   Grain  Marketing   Problems   of   the  Northwest,  pp. 

309-322. 
Stout,  F.  W.,  Necessary  Costs  of  Handling  Grain  at  Country  Stations, 
pp.  322-326 
Report    of    the   Fourth   National    Conference    on    Marketing    and    Farm 
Credits. 
Anderson,  J.  M.,  Problems  of  a  Cooperatively  Owned  Terminal  Sys- 
tem, pp.  283-289. 
Boyle,  James  E.,  Some  Difficulties  of  a  State  Terminal  Elevator  Sys- 
tem, pp.  269-283. 
Chipman,   George   F.,   The   Grain   Growers   of   Western   Canada   and 

the  Marketing  of  their  Own  Grain,  pp.  290-298. 
Danforth,  Herman,  The  Farmers'  Elevator  Movement  in  the  United 

States,  pp.  250-258. 
Friday,  David,  The  Economic  Function  of  the  Middleman,  pp.  113-123. 
Hibbard,  B.  H.,  The  Tenant  of  the  North  and  the  Marketing  of  his 

Crop,  pp.  459-463. 
Lyman,  Charles  A.,  The  Cooperative  Society  in  Wisconsin,  pp.  39-50. 
Myers,   Millard   R.,   The   Form  of   Agricultural   Cooperation  Needed 

in  America,  pp.  25-39. 
Pinchot,  Gifford,   Relation  of   Conservation  to  Agricultural  Coopera- 
tion. 
Plunket,  Sir  Horace,  The  Next  Step  in  the  Organization  of  Agricul- 
ture, pp.  15-25. 
Stickney,  W.  M.,  Cooperation  at  Work,  pp.  84-97. 
Tousley,  E.  M.,  Putting  Cooperation  on  a  Business  Basis. 
Russell.  Charles  E.,  The  Story  of  the  N on-partisan  League,  a  Chapter  in 

American  Evolution,  New  York,  1920. 
Ryan,  John  A.,  Distributive  Justice,  New  York,  1918. 

Sen.  Doc.  No.  278,  59th  Cong.  2d  sess.,  "Testimony  Taken  by  the  Inter- 
state Commerce  Commission  in  the  Matter  of  the  Relations  of  Common 
Carriers  to  the  Grain  Trade,"  Washington,  1906. 
Sen.  Doc.  No.  40,  67th  Cong.  1st  sess,,  "Preliminary  Report  of  the  Federal 
Trade  Commission  on  the  Costs  and  Profits  of  Terminal  and  Country 
Grain  Elevators,"  Washington,  1921. 
Shaw,  Albert,  Cooperation  in  the  Northwest,  in  "Johns  Hopkins  University 

Studies  in  His.  and  Pol.  Science,"  Vol.  6th,  Baltimore,  1888. 
Spillman,  W.  J.,   and   Goldweiser,  E.   A.,   Farm   Tenantry  in   the   United 

States,  Bulletin  715,  U.  S.  Dept.  of  Agric,  1916. 
Stickney,   William    M.,   Grain   Growers   Reduce   Cost   of   Distribution,   in 
"Annals  of  the  American  Acad,  of   Pol.  and  Soc.  Science,"  Vol.  50th, 
1914. 
Taeusch,  C,  Rural  Cooperation  and  Cooperative  Marketing  in  Ohio,  Ohio 

Agric.  Exp.  Sta.,  Circular  No.  141,  Wooster,  1914. 
Taylor,  Henry  C,  Agricultural  Economics,  New  York,  1919. 
The  U.  S.  Grain  Growers,  Inc.,  Chicago,  1921. 

Vanderblue,  Homer  B.,  The  Functional  Approach  to  the  Study  of  Market- 
ing, pp.  676-683,  in  "Journal  of  Pol.  Econ."  (October,  1921). 
Vogt,  Paul,  Introduction  to  Rural  Sociology,  New  York,  1917. 
Warner,  Amos,  Three  Phases  of  Cooperation  in  the  West,  in  "Johns  Hop- 
kins ijniversity  Studies  of  His.  and  Pol.   Science,"  Baltimore,   1888. 
Weld,    L.    D.,    Cooperative   Marketing    of    Grain    in    Western    Canada,    in 
"University  of  Minnesota  Studies  in  the  Soc.  Sciences,"  No.  4,  1915. 
Farmers'  Elevators  in  Minnesota.  Agric.  Exp.  Sta.  Bulletin,   152,   St. 

Paul,  1914. 
The  Marketing  of  Farm  Products,  New  York,  1916. 


154      THE  COOPERATIVE  ELEVATOR  MOVEMENT 

Weseen,  Maurice  N.,  The  Cooperative  Movement  in  Nebraska,  in  "Journal 

of  Pol.  Econ.,"  Vol.  28th  (June,  1920). 
Wcrral,  Thomas,  The  Grain  Trust  Exposed,  Lincoln,  Nebr.,  1905. 
Wolcott,   Charles   C,  A    Gigantic   Conspiracy;    The  Northwestern   Wheat 

Ring  and  its  Infamous  Robberies,  Chicago,   (?),  1892. 
Wolff,  Henry  W.,  Cooperation  in  Agriculture,  London,  1912. 
Yearbooks  of  the  U.  S.  Dept.  of  Agric. 


VITA. 

The  author  of  this  dissertation  v/as  born  at  Newport, 
Ohio,  on  January  1,  1894,  and  received  his  early  education 
in  the  public  school  at  Egypt,  Ohio.  In  September  of  1907 
he  entered  St.  Joseph's  College,  Collegeville,  Ind.,  where 
under  the  direction  of  the  Fathers  of  the  Precious  Blood 
he  completed  his  academic  and  collegiate  courses  on  June 
15,  1913.  In  September  of  the  same  year,  he  entered  St. 
Charles'  Seminary,  Carthagena,  Ohio,  where  he  attended 
the  courses  in  Philosophy  and  Theology.  On  September 
8,  1915,  he  was  received  into  the  Society  of  the  Precious 
Blood  as  one  of  its  members.  He  was  ordained  to  the 
Holy  Priesthood  by  his  Grace,  the  Most  Reverend  Henry 
Moeller,  D.D.,  Archbishop  of  Cincinnati,  on  December  29, 
1918.  Soon  after  he  entered  the  Graduate  School  of  Phi- 
losophy of  the  Catholic  University  of  America,  choosing 
Economics,  Sociology,  and  English  as  his  subjects  of  study. 
In  Economics  he  followed  courses  under  Dr.  O'Hara,  Rev. 
Dr.  Ryan,  Dr.  Deviny,  and  Dr.  Purcell:  in  Sociology,  un- 
der Rev.  Dr.  Kerby,  Rev.  Dr.  O'Grady,  and  Rev.  Dr. 
Cooper:  in  English,  under  Dr.  Lennox  and  Dr.  Hemelt. 
He  moreover  attended  the  course  in  Social  Psychology  un- 
der the  Rt.  Rev.  Dr.  Pace.  The  writer  takes  very  great 
pleasure  in  expressing  his  gratitude  to  all  his  professors. 
In  a  special  manner  he  feels  indebted  to  Dr.  O'Hara,  who 
supervised  his  major  work  and  under  whose  direction  this 
dissertation  was  written.  His  corrections,  suggestions, 
and  encouragement  are  most  gratefully  remembered.  The 
writer  expresses  his  thanks  also  to  Mrs.  O'Hara,  who  read 
the  manuscript  with  the  view  of  correcting  faults  of  style. 
He  is  indebted  likewise  to  many  others  who  have  supplied 
him  with  necessary  and  useful  information  in  the  prepara- 
tion of  this  work.  He  takes  special  pleasure  in  thanking 
Rev.  Dr.  Kerby,  Rev.  Dr.  Ryan,  and  Mr.  Millard  R.  Myers, 
of  Chicago,  the  editor  of  the  American  Co-operative  Jour- 
nal, for  valuable  suggestions  and  for  having  reviewed  the 
entire  manuscript. 

155 


m^. 


onfirstday. 


w  *-'  I     t^- 


FEB     9  I960 


JAfiU 


LD  21-10  Om 


.l2,'46(A2012sl6)4120 


YC  26023 


48^1639 


«...^J\,: 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


